Developed to promote cost savings and financial inclusion, Sec 80TTA is offered to specific taxpayers and Hindu Undivided Families. The interest income subject to deduction must come from savings accounts.
There is a maximum deduction under section 80TTA of the Income Tax Act of Rs. 10,000 from the entire taxed earnings on money made in savings accounts with banks, cooperative societies and post offices. Interest from fixed, recurring or any other term deposits doesn’t qualify.
What is Section 80TTA of Income Tax Act?
Under Section 80TTA, This section allows deductions up to Rs. 10,000 on interest made in savings accounts with banks, cooperative societies or post offices. The purpose of Section 80TTA of Income tax Act is to encourage cost savings and HUFs to make it possible for financial inclusion & tax burden relief to taxpayers.
80TTA Deduction: Main Features
The main features of 80TTA are:
- Deduction Limit: The limit of deduction is Rs. 10,000. If interest paid from a savings account is less compared to or much more than Rs. 10,000, the full is deductible. If interest income exceeds this amount, withdrawal can be restricted to Rs. 10,000.
- Eligible Accounts: The interest income deductible under Section 80TTA should come from savings accounts in banks, cooperative societies or post offices. Interest on fixed deposits, recurring deposits, or another type of term deposits isn’t deductible.
- Applicability: Individual taxpayers and HUFs may claim the deduction. Non-Residential Indians also could claim this deduction but only on interest earned from Non Resident Ordinary accounts. Interest paid out of Non Residential External accounts isn’t deductible under Section 80TTA.
80TTA Eligibility: Who May Claim?
The taxpayer has to be as per these eligibility requirements for the deduction:
- Taxpayer Type: Individual taxpayers and HUFs may claim the deduction. Companies, firms along with other persons aren’t exempt from this deduction.
- Type of Account: The interest income must come from savings accounts with banks, cooperative societies or post offices. Interest out of fixed deposits, recurring deposits and other term deposits isn’t deductible under this particular section.
- Interest Income: Then the entire interest earnings from savings accounts have to be computed and the deductibility is permitted up to Rs. 10,000.
- NRIs: Only interest earned from NRO accounts may be claimed by Non Resident Indians (NRIs). Interest from NRE accounts is taxable and doesn’t qualify for this deduction.
Application for Deduction Under Section 80TTA
To claim the deduction under Section 80TTA, follow these guidelines:
- Determine Eligibility: Verify you’re an individual taxpayer or a Hindu Undivided Family. Non-individual taxpayers aren’t able to take this deduction.
- Calculate Interest Income: Find the total interest earnings from all obtainable savings accounts for the economic year. This includes interest from savings accounts in banks, post offices and cooperative societies.
- Deduce Deduction Amount: A maximum deduction under Section 80TTA is Rs. 10,000. If interest income exceeds or equals Rs. 10,000, the full can be claimed as being a deduction. When interest income exceeds Rs. 10,000, withdrawal is capped at Rs. 10,000.
- Maintain Documentation: Keep records, which includes bank statements or passbook entries, to prove interest income and the claim under Section 80TTA. The tax authorities could require these kinds of documents for verification or audit.
Important Considerations
Some other important considerations are:
- Interest Rate Changes: The Reserve Bank of India had earlier set the savings account interest rate at 4% based on a quarter’s minimum balance. But now banks can set rates higher and many offer 6% interest on savings accounts. Interest is computed on the daily balance; thus, interest earnings per quarter could be higher.
- Senior Citizens: The other provision applies to individuals over sixty (senior citizens): Section 80TTB. This particular section allows a higher deduction limit of Rs. 50,000 on interest earnings of bank accounts, fixed payments and repeated deposits in banks and post offices.
Conclusion
Justifying the thought process and rationale behind granting tax relief to individual taxpayers and HUFs, the government brought section 80TTA of the Income tax Act with provisions relating to saving and financial inclusion. It precedes the deduction of as much as Rs. 10,000 on interest earnings from savings accounts, and encourages taxpayers to save more money.
FAQs
What is Section 80TTA of the Income Tax Act?
Section 80TTA deduction is available to both resident and non resident Indians but NRIs can get just interest earned on Non Residential Ordinary accounts. Interest earned on Non-Residential External accounts isn’t deductible.
How much interest can be deductible under Section 80TTA?
Under Section 80TTA, taxpayers may deduct maximum Rs. 10,000 on interest earnings of savings accounts. If interest earnings from all qualified savings accounts is under or greater than Rs. 10,000, the full is deductible.
Who is eligible for deduction under Section 80TTA?
- Banks (including cooperative banks)
- Post offices.
- Cooperative societies which conducted banking.
How do you claim deductions under Section 80TTA?
These are the given steps to claim deductions under Section 80TTA:
- Determine Eligibility.
- Determine Deduction Amount: Max deduction permitted is Rs. 10,000.
- Add to Total Income.
Are there restrictions or conditions on availing the deduction under Section 80TTA?
Yes, there are limitations and conditions on using the deduction under Section 80TTA:
- Taxpayer Type: This deduction is available to individual taxpayers and Hindu Undivided Families. Companies, companies along with other entities are ineligible.
- NRIs: Non-Resident Indians can claim only interest derived from NRO accounts. Interest paid out from NRE accounts is taxed, etc. among other restrictions.
