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Section 80TTA of Income Tax Act about Deduction for Interest on Personal Savings
Section 80TTA of the IT Act provides tax deduction on income coming from the interest of personal savings. To help you claim deductions under the provision of Section 80TTA of Income Tax Act, we will discuss in detail its eligibility, limit, inclusions and exclusions.
What Is Section 80TTA Deduction?
Section 80TTA deduction was laid in 1961, and it provides a deduction of up to ₹ 10,000. This act is applicable to individual savings in banks and groups of individual savings under HUF (Hindu Undivided Family). However, it is ineffective on income coming as interest from fixed deposits or time deposits.
Interest Income Eligible for Deductions Under Section 80TTA
Income coming from savings with the following institutions is applicable for tax deduction under section 80TTA of income tax act -
- Bank
- Cooperative society executing the banking business
- Post office
What Is the Maximum Deduction Acceptable Under Section 80TTA?
The maximum 80TTA deduction applicability is ₹ 10,000 p.a., i.e., any excess amount coming as earning from savings will be subject to taxation. Here the calculation is done on the cumulative interest amount coming from one or many savings accounts with different banks.
The interest income is counted as income from other sources. Taxpayers can claim a maximum deduction of ₹10,000 from their gross total income and arrive at the taxable income. The applicable tax percentage will then be calculated on the taxable income of the taxpayers.
What Type of Interest Is Not Allowed for Deduction Under Section 80TTA?
Interests from the following sources are not allowed under this section -
- Fixed deposit.
- Recurring account.
- Time deposit.
- Savings with non-banking finance companies.
Companies, LLP, partnership firms are not allowed to get benefits on interest under section 80TTA.
Who Is Eligible to Claim Tax Deductions Under Section 80TTA?
The most important factors for Section 80TTA eligibility are -
- Taxpayer residing in India
- Group of individuals under HUF
- NRI with an NRO savings account
- Age below 60 years (there is no applicability of section 80TTA for senior citizens, they can apply for section 80TTB)
How Much Tax Will It Save?
This is a viable question on the internet, what is 80TTA in income tax and how much you can save on it? The maximum tax amount that can be saved via 80TTA depends on the tax slab that a taxpayer falls under.
In case your total income falls under 20% tax slab, the maximum tax amount that can be saved is ₹2,000 against the deduction of ₹10,000 under 80TTA. Likewise, if you qualify under 30% tax slab, the maximum amount you can save will be ₹3,000.
Section 80TTA of Income Tax Act aims to facilitate better financial management. Thus, it helps people avoid paying tax on income generated through small savings and big investors by not bothering them to include negligible interest amounts in the tax return filing process.
Can NRIs Avail of Deduction Under Section 80TTA?
Yes, NRIs can claim for deduction or exemption under Section 80TTA of the Income Tax Act. However, it is important to note NRIs can open two accounts: NRO and NRE accounts. As interest earned from the NRE account is tax-free. Individuals who have NRO savings accounts can only reap the benefits under Section 80TTA.
Section 80TTA of Income Tax Act aims to facilitate better financial management. Thus, it helps people avoid paying tax on income generated through small savings and big investors by not bothering them to include negligible interest amounts in the tax return filing process.