What is Section 80TTA?
Many taxpayers are not aware about section 80TTA under Income Tax Act’1961 which was introduced through Finance Act, 2012. This section 80TTA provides a deduction of Rs.10,000 on your income from interest on saving bank accounts.
Who can claim deduction u/s 80TTA?
Deduction u/s 80TTA is applicable to individual taxpayers and HUF only. This benefit is not available to a firm, an association of persons or a body of individuals.
How does it work?
Interest earned on your savings account has always been taxable under the head “Income from Other Sources”. This needs to be declared in your income tax returns. In order to claim deduction, you have to first include interest income in your total income and then claim deduction u/s 80TTA.
For example, if you have received an interest of Rs. 17,000/- from your savings bank account then you have to pay a tax on Rs. 7,000 only i.e. (17,000-10,000) thus Rs. 10,000 can be claimed as a deduction u/s 80TTA. But if total interest income from all your savings accounts is Rs. 9,000 only, then you don’t need to pay income tax at all and the entire amount would be deductible u/s 80TTA.
How is the interest calculated ?
The interest is calculated on the daily balance in your account. Before Apr 2010 the interest was calculated on the lowest amount in the bank account between the 10th of every month and the last business day of the month.In Apr 2010 RBI moved to calculation on daily basis
Is section 80TTA applicable to FD Interest?
No, this deduction is NOT applicable to the interest you received on your Fixed Deposits/time deposit or term deposit.
For example if you make a 365 days FD for an amount of Rs. 50000 at an interest rate of say 8%, your entire interest income of Rs. 4,000 (Rs. 50,000 * 8%) would be subject to tax as per your applicable tax slab. You cannot claim deduction of Rs. 4,000 available u/s 80TTA and you need to pay tax on it. You may also be required to pay TDS on FD interest earned.
Does no “TDS” means “no need to pay Tax”?
Income Tax Act allows certain deposits & accounts on which no tax is required to be deducted at source, irrespective of any limit for the amount of such interest. Hence there is no TDS on your saving account interest. Regarding FDs, banks deduct TDS only if your total interest income is more than Rs10,000.
In any case, you have to pay tax on FD or saving account interest as per your tax slab. And as mentioned above you can claim deduction up to Rs10,000 with respect to your savings account interest. For example, if your bank is deducting 10 pc tax on your FD interest and you fall under the higher slab of say 20 or 30 pc, then you need to pay the balance tax.
Is the deduction per saving bank account or all saving bank accounts together?
The deduction towards interest on ALL saving accounts taken together cannot exceed Rs. 10,000. This deduction is available on interest income from all savings bank accounts that a taxpayer might have in banks, cooperative societies or post offices.You cannot have multiple deductions for multiple savings bank accounts
Other points
- Saving bank account should be maintained with a bank or society or post office.
- The deduction is in addition to deduction of Rs. 1 Lakh of section 80C of the Income Tax Act-1961.
- Please note that Interest from Saving Bank Account is not exemption but a deduction
- The interest earned on savings account is exempted from TDS under Section 194 A of Income Tax Act i.e No TDS is deducted on interest from saving account.
The right understanding can save immense taxes for you. Money saved is money earned. Get going.
Related Posts:
- Income Tax Slabs
- See what people say when they move from the rat race to financial freedom
- Income Tax Submission, Delays, Deadlines and Implications
- Learn how to pursue Financial Freedom
- Other posts on Savings Accounts
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Manoj Arora
Freedom can buy you what money cannot !!
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