Many of us keep our hard earned money in bank fixed deposit or recurring deposit or in saving bank account to generate certain amount of return. This return on investment or interest amount is taxable in the same financial year in which you have earned or received it.
However, tax deduction of Rs 10,000 under section 80TTA on interest income earned from saving account can be claimed by the tax payer while filling IT return.
However, if your interest income is less than Rs. 10000 then the lower amount will be available as tax deduction under section 80TTA i.e. Rs. 10000 or interest income whichever is lower will be allowed as tax deduction under section 80TTA.
Provisions related tax deduction on interest income has been specified under section 80TTA of income tax act 1961.
In this article we will be discussing these provisions in detail and will also let you know how to claim this tax deduction on saving account interest income in your IT return.
Who is eligible for tax deduction on bank interest?
According to section 80TTA of income tax act 1961, benefit of tax deduction on bank interest income is available to an individual or HUF.
If you are a partnership firm or association of person or body of individuals then benefit of section 80TTA is not available.
Even partners of the firm or member of AOP or BOI will not be eligible for tax deduction under section 80TTA for the interest that firm or AOP or BOI has earned.
Section 80TTA also specify that interest income from saving account kept in following institution will only qualify for tax deduction;
- Bank or
- Co-operative society engaged in carrying on the business of banking including a co-operative land mortgage bank or a co-operative land development bank or
- Post office
So one thing is clarified that the tax deduction under section 80TTA will not only be applicable to interest income from bank saving account but also equally be applicable to interest income generated from past office saving account.
Special exemption benefit for interest on post office saving deposits
A special tax exemption is available for depositing money in saving accounts of post offices. As per section 10(15)(i) of income tax act, post office saving account deposit interest will be exempted up to Rs. 3500 in case of an individual and Rs. 7000 in case of joint account holders.
This exemption limit is applicable from assessment year 2012-2013 onwards. Before that entire amount of interest income earned on post office saving account was exempted.
Interest income on post office saving account will get double benefit from assessment year 2012-2013 onwards. First it will be exempted up to Rs. 3500 or Rs. 7000 under section 10(15)(i) and then tax deduction of Rs. 10000 under section 80TTA.
After getting tax deduction on interest income as discussed above, your balance interest income will be taxable under the head income from other sources.
How to claim tax deduction on saving account interest income
In order to claim tax deduction under section 80TTA on interest income, you are first required to include the entire interest to your total income and then claim tax deduction of Rs. 10000 or interest income whichever is lower from total income.
Example: if interest income from saving account is Rs.18000 and other income is Rs. 340000 then first add Rs. 18000 to Rs. 340000 and then from Rs. 358000 claim Rs. 10000 as tax deduction under section 80TTA which comes to Rs. 348000.
Example: if your interest income is Rs. 8400 in the above example then instead of Rs. 10000 you will be eligible for a tax deduction of Rs. 8400 under section 80TTA. So in the first step you need to add Rs. 8400 to Rs. 340000 which will become Rs. 348400 and then claim tax deduction of Rs. 8400 to get your final income as Rs. 340000.
Please remember that this tax deduction on saving account interest income under section 80TTA is not bank or branch specific. This deduction is available on your aggregate saving account interest income. If you have more than one saving account then add all those interest income to your other incomes and then claim this tax deduction under section 80TTA.
Another most important point to remember is that tax deduction under section 80TTA is not applicable to interest income from fixed deposit or time deposit.
Any interest income generated from a deposit which has been kept for a fixed period to get interest will not be taken into consideration for section 80TTA tax deductions and as such entire amount will be taxable without tax deduction.