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Section 80TTA to Claim Deduction on Interest

June 21st, 2019 in Finance & Accounts

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.

Amount of Deduction Available under Section 80TTA

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:

  1. Bank saving account
  2. A co-operative society saving account that is carrying banking business
  3. The post office saving account

Section 80TTA Exemption

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:

  1. Fixed deposits interest
  2. From the interest received from recurring deposits
  3. Any other income

In addition to this, any deposits with Non-Banking Financial Corporation (NBFC) and companies are exempted under Section 80TTA.

TDS Applicability on Interest Earned

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.

Example of Section 80TTA

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:

  1. Interest received on saving account 10,000 INR
  2. Interest earned on FD of 1, 00,000 INR
  3. Other income 5, 00,000 INR

Particulars

Taxability

Interest received on saving account

10,000

Interest earned on Fixed Deposits

1,00,000

Other income

5,00,000

Gross total income

6,10,000

Less: Deduction under Section 80TTA

10,000

Less: Deduction under Section 80TTB

Not Applicable

Taxable income

6,00,000

Tax on Above

34,500

Add CESS @ 4%

1,380

Total Tax

35,880

So through the above example, we can notice that a taxpayer can enjoy a benefit of 10,000 INR while calculating the tax liability.

Points to Remember

  1. Under Section 80TTA, a taxpayer can enjoy a tax emption up to 10,000 INR.
  2. The deduction of Section 80TTA is limited to the individuals and Hindu Undivided Family (HUF).
  3. A taxpayer can have multiple bank accounts in the various bank but the exemption limit for all cumulative bank interest remains the same i.e., 10K INR.
  4. As per Section 80TTA, TDS is not applicable on the interest earned from the saving bank account.