The government introduced Section 80TTA to provide a deduction of 10,000 INR on the income that is generated due to the interest received on the saving bank account. Moreover, this deduction is available to the Hindu Undivided Family (HUF) and an individual.
Under Section 80TTA, an individual and HUF can avail a deduction of an amount not exceeding 10,000 INR from the Gross total Income. But there is catch if your income through saving bank account is less than 10,000 INR then the whole interest income is your deduction. On the other hand, if the income is more than 10,000 then you can only avail the deduction not more than 10,000 INR. The saving bank account for the purpose of section 80TTA includes the following account:
The deduction under Section 80TTA is not permissible on the time deposits. Where the time deposits are those bank deposits that is paid back by the bank on the expiry of a fixed tenure. The most common examples of time deposits are FD (Fixed Deposits) and RD (Recurring Deposit). The following deductions under Section 80TTA are exempted:
In addition to this, any deposits with Non-Banking Financial Corporation (NBFC) and companies are exempted under Section 80TTA.
Under Section 194A of the Income Tax Act, the interest received on the saving bank account is exempted from TDS. In other words, TDS is not deducted on interest earned from the saving bank account.
Let us see the practical use of deduction under Section 80TTA
Every Individual including Hindu Undivided Family (HUF) can take 10,000 INR deduction on the interest received on the saving bank account. Now let us see how a taxpayer and HUF can save their taxes under Section 80TTA:
Let us assume that the following are the taxpayer income during a financial year:
|Interest received on saving account||10,000|
|Interest earned on Fixed Deposits||1,00,000|
|Gross total income||6,10,000|
|Less: Deduction under Section 80TTA||10,000|
|Less: Deduction under Section 80TTB||Not Applicable|
|Tax on Above||34,500|
|Add CESS @ 4%||1,380|
So through the above example, we can notice that a taxpayer can enjoy a benefit of 10,000 INR while calculating the tax liability.