Introduction
Are you tired of having your hard-earned funds eroded by taxes? Don’t worry. There is a brilliant option that allows you to avoid tax on interest earned on the savings account. Yes, you read that correctly! You may keep more interest money in your pocket with some help from Section 80TTA of income tax.
Surprisingly, many individuals are unaware that tax on savings account interest is deductible. To facilitate this tax exemption, the Income Tax Department added two provisions to the Income Tax Act 1961: Section 80 TTA and Section 80 TTB. These sections allow you to deduct up to ₹10,000 from your savings account interest income.
Do you want to know in detail about how to avoid tax on savings account interest using Section 80TTA? Keep reading until the end!
Who is Eligible for the 80TTA Deduction?
Section 80TTA is quite inclusive. Any individual, Non-Resident Indian (NRI), and Hindu Undivided Family (HUF) can avail of a deduction under it. One important thing to remember if you are an NRI is that you can only open two types of accounts in India: NRE and NRO. The good news is the interest earned on NRE accounts is tax-free!
However, you can take advantage of Section 80TTA if you have an NRO savings account. It’s worth mentioning that this provision doesn’t apply to you if you are over the age of 60. This is because you can take advantage of provision 80TTB instead.
Which Types of Interest Income are Deductible Under Section 80TTA of Income Tax?
Section 80TTA allows you to deduct interest income from a variety of sources. These include the following:
- Interest collected on a post office savings account.
- Interest gained on a cooperative society savings account.
- Interest earned on a bank savings account.
It should be noted that this deduction only applies to individuals, NRIs, and Hindu Undivided Families (HUFs). So, if you fall into one of these groups and have interest income from any of the above sources, you can deduct it under Section 80TTA.
What are the Section 80TTA Exceptions?
Certain types of interest incomes earned from savings accounts are not eligible for tax deduction under Section 80TTA of the Income Tax Act, 1961 in India. It’s important to know those types of incomes as well to avoid unpleasant financial surprises. Here they are:-
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Recurring Deposit (RD) Interest
This refers to the interest gained on recurring deposits. An RD account is a savings plan in which people deposit a certain amount at regular intervals. The interest earned on deposits grows with time. Unfortunately, this interest is not deductible under Section 80TTA either.
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Corporate Bond Interest
Interest earned on corporate bonds, debentures, and other interest-bearing instruments issued by corporations is not exempted under 80TTA. Debt securities corporations issue to raise capital are also not deductible under Section 80TTA.
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Fixed Deposit (FD) Interest
When you deposit a significant sum of money with a financial institution for a certain length of time, you receive interest on it. That is called a Fixed Deposit (FD). This interest on FD, however, is not deductible under Section 80TTA.
How to Apply for a Section 80TTA Deduction?
To claim deductions and avoid tax on interest earned on savings accounts and cooperative societies under Section 80TTA of the income tax, you need to follow these procedures Step-by-step:-
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Evaluate Eligibility
First, you must confirm whether you are a single person or a Hindu Undivided Family (HUF). Non-individual taxpayers, such as corporations, partnerships, or LLPs, are not eligible for this deduction.
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Calculate Interest Income
Total the interest revenue from savings accounts and cooperative societies earned over the fiscal year. This comprises income earned on savings accounts and post offices. Also, calculate the interest gained on deposits with cooperative societies that do banking activity.
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Determine Deduction Amount
The deduction under Section 80TTA is limited to ₹10,000. You may deduct the full amount if your total interest income is less than or equivalent to ₹10,000. If your interest income exceeds ₹10,000, you can claim just ₹10,000 as a deduction.
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Include the Interest in Your Total Income
When calculating your tax burden, add your interest income to your overall income. This is required since the 80TTA deduction is claimed from total income.
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Submit an Income Tax Return
When submitting your income tax, declare the interest income earned from savings accounts and other eligible sources under the relevant heading. It could be “Income from Other Sources”. Only after this declaration you can claim the deduction. Ensure you offer correct information and, if necessary, supporting documents.
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Keep Documentation
Keep any essential papers, such as bank statements or passbook entries, to prove the interest income and Section 80TTA claim. The tax authorities may demand specific documents for audit or verification purposes.
You can save a lot of money if you take advantage of this clause. But keep in mind that if you choose the new tax system indicated in Section 115BAC, you cannot claim the Section 80TTA deduction. It’s best to consult a tax professional to verify that you fulfil all the conditions and can fully benefit from Section 80TTA.
Author
Naina Rajgopalan has a thing for numbers and a deep fascination to learn about all things finance. She’s been money-wise from a young age and has always shared her knowledge and tips with those around her. Being a part of the content team at Freo, a neobank that offers flexible and customised financial products, along with benefits such as insurance on balance, safe & secure banking, and so on, Naina stays updated with the latest of what happens in the banking and fintech industries.
She has taken upon herself to share her knowledge with readers across all walks of life to help them manage their finances and budgets better, so they can make better decisions while spending, borrowing, investing and saving.
Disclaimer:
This article is authored by Naina Rajgopalan. The following article represents the views and opinions of the author alone and does not reflect the official stance or opinions of Sorting Tax or its owners. We do not take responsibility for any claims, statements, or opinions expressed in the article. Any information or advice provided in article should be independently verified by readers, and they should exercise their own judgment when applying or relying on such information.
