What Is 80TTA Deduction?

Most people have a savings bank account. Yet, many are probably unaware that the interest earned is taxable under the “Income from other sources” category. Nonetheless, there is an opportunity to save taxes on interest earned up to Rs 10,000 with Section 80TTA of the Income Tax Act, 1961, which allows this deduction.

This article explores Section 80TTA meaning in greater detail.
 

What is Section 80TTA?

Section 80TTA is a provision under the Income Tax Act of 1961 allowing individuals to claim a deduction on the interest income earned from savings accounts. Under this section, individuals can claim a deduction of up to Rs. 10,000 on the interest income earned from savings accounts held with banks, cooperative societies, and post offices.

It is important to note that this deduction is available only to individuals and Hindu Undivided Families (HUFs). Furthermore, this deduction applies only to the interest earned on savings accounts, not other interest income.

To claim this deduction, individuals must provide details of their interest income in their income tax return (ITR) and mention the deduction under Section 80TTA. It is also essential to note that the deduction cannot exceed the interest income earned from savings accounts during the financial year.

Who can Claim 80TTA Deduction?

Section 80TTA deduction is available to

● Individuals
● HUFs

Note: Senior citizens aged 60 and over are not subject to this section as Section 80TTB applies to them.

Can NRIs Avail of a Deduction under 80TTA?

Yes, NRIs are also eligible for deductions under Section 80TTA. However, they are only permitted to open two account types in India, i.e. NRE and NRO. Interest earned on NRE accounts is tax-free, so only holders of NRO savings accounts can claim the benefit of Section 80TTA.

Which Type of Interest Incomes are Allowed as a Deduction Under Section 80TTA?

Among the sources of interest income, you can deduct the following.

● From a bank’s savings account
● From savings accounts with cooperative societies that conduct banking business
● From postal savings accounts.
 

Interest Income Not Allowed as Deduction Under Section 80TTA

Section 80TTA does not allow deductions for certain types of interest income, including those earned on

● Fixed deposits
● Recurring deposits
● Other time deposits (repayable after a specific fixed period)
 

Maximum Deduction Allowed Under Section 80TTA

Section 80TTA income tax deductions are limited to Rs 10,000 if your interest income exceeds this amount. Your interest income will be deductible if it is less than Rs 10,000. 

Note: If you have multiple accounts with different banks, you must consider your total interest income from them.
 

How to Claim Deduction Under Section 80TTA?

To claim a deduction under Section 80TTA, follow these steps:

● Add your total interest income earned from savings accounts to the “Income from Other Sources” category in your income tax return.
● Calculate your gross income for the financial year by adding your income from all sources.
● Show the deduction for the interest income earned from savings accounts under Section 80TTA.

If you choose the new 115BAC tax regime, you cannot claim the Section 80TTA deduction.

For Example:

Suppose X earns Rs 5,00,000 per year as a salary, earns Rs 5,000 interest on their savings account with a bank, and earns Rs 15,000 interest on their fixed deposits. A deduction of Rs 10,000 is also eligible under Section 80C. Under the old tax regime, taxable income will be calculated as follows.