Section 80TTA of Income Tax Act: Deduction Limit

Worried that your income this year may skyrocket you into a higher income tax slab? In that case, you can put your concerns to rest by claiming suitable deductions on specific incomes. The Income Tax Act, 1961, includes various provisions that offer tax relief for assessees. One such provision is section 80TTA, which allows you to deduct savings account interest from your total income.

Want to know more about how this tax benefit works? In this article, we’ll give you all the details you need to know about section 80TTA of the Income Tax Act.

What is Section 80TTA of the Income Tax Act?

Section 80TTA of the Income Tax Act is a provision that allows taxpayers to claim the interest from savings accounts as a deduction from the total income. This provision is aimed at encouraging the practice of saving money. The maximum amount of deduction eligible under this section is ₹10,000.

Types of Interest Income Allowed Under Section 80TTA

Only certain kinds of interest income are eligible for section 80TTA deduction. Check out the types of interest that you can claim under this section.

Any interest earned from savings accounts opened with banks
Any interest earned from savings accounts held with a post office
Any interest income from savings accounts offered by cooperative societies that provide banking solutions

Types of Interest Income Not Allowed Under Section 80TTA

Section 80TTA only covers interest from savings accounts. The following types of interest are not deductible under this section of the Income Tax Act.

Interest earned on fixed deposits
Interest earned on recurring deposits
Interest earned on government or corporate bonds
Interest earned on current accounts
Interest from debentures

Eligibility for Section 80TTA Deductions

Now that you know what section 80TTA is and what types of interest it covers, let us discuss the eligibility criteria for claiming this benefit. 80TTA deductions can only be claimed by the following categories of taxpayers.

Individuals under the age of 60
Hindu Undivided Families (HUFs)
Non-resident Indians (NRIs), for interest earned on their non-resident ordinary (NRO) accounts only

Note: Senior citizens are not eligible for section 80TTA deductions because they can avail the benefits of section 80TTB instead.

Maximum Deduction Limit Under Section 80TTA

The maximum amount of interest deductible under section 80TTA of the Income Tax Act is ₹10,000. This limit includes interest from all eligible savings accounts. There is no cap on the number of accounts that can be considered for this tax benefit. The limit is only imposed on the amount of interest that is deductible under section 80TTA.

An Example of Deduction Under Section 80TTA of the Income Tax Act

Having seen what section 80TTA is, what it covers and excludes and the eligibility criteria for this deduction, let’s discuss an example of how this provision works.

Say you earn a total income of ₹12,00,000 during a given financial year. This includes the following types of interest:

Interest from bank savings accounts: ₹6,400
Interest from your post office savings account: ₹3,200
Interest from your cooperative society savings account: ₹2,800
Interest from fixed deposits: ₹20,000
Interest from recurring deposits: ₹1,500

Given these details, you can claim the interest from your savings account only under section 80TTA. The total amount of interest from these savings accounts is ₹12,400 (i.e. ₹6,400 + ₹3,200 + ₹2,800). However, given the maximum deduction limit under section 80TTA, you can deduct ₹10,000 from your total income.

How to Claim the Deduction Under Section 80TTA?

One of the most important things to note before you claim your 80TTA deduction is that this benefit is only available under the old tax regime. The new tax regime, which is now the default option when filing income tax returns (ITRs), does not allow deductions under section 80TTA of the Income Tax Act.

So, if you choose to adopt the old tax regime, here is how you can claim deductions under section 80TTA.

Step 1: Check Your Eligibility for 80TTA Deductions

Start by checking if you are eligible for section 80TTA deductions. If you are a senior citizen or an NRI earning interest from your NRE accounts, this section will not apply to your tax assessment.

Step 2: Compute the Interest Eligible for Deduction

If you are eligible for deductions under section 80TTA, the next step is to identify the total interest income that you can claim under this provision. Make sure you only take the interest earned from savings accounts.

Step 3: Find the Deductible Amount

The deductible amount is the lower of ₹10,000 or the actual eligible interest earned. Once you have identified the eligible interest in the previous step, find the amount that qualifies for the 80TTA deduction.

Step 4: Enter the Relevant Details and File Your ITR

Enter the deductible amount in the relevant field in your income tax return, fill in all the other details accurately, pay any tax due and file your ITR online. This is how simple it is to claim the deduction under section 80TTA of the Income Tax Act.

Conclusion

Section 80TTA of the Income Tax Act is only one of the many provisions that offer tax relief. You can also explore other deductions and exemptions available to taxpayers, so you can minimise your tax liability using the Act. However, keep in mind that many deductions are only applicable under the old tax regime. If you choose the new tax regime, you may be eligible only for a select few tax benefits. The ideal course of action is to compare your tax liability under the two regimes and select the most beneficial option.