Learn the essentials of Section 80TTA. Know all about Section 80TTA Deduction-Interest on deposits in the savings account. Savings account interest up to Rs. 10,000/- exempt u/s 80TTA. For more about the Section 80TTA-Deduction of Interest on Savings, read the following article.
Deduction under Interest on Deposit
We all have a tendency of regarding the amount of Interest on Bank Savings Account earned during the year. However do we know the manner in which this Interest is computed & the Income Tax on Interest on Savings A/C that would be liable to be paid? Let us check the Tax Deduction of Interest on Saving accounts.
Section 80TTA has been introduced in Financial Year 2012-13. The good news is that since the year 2012-2013, interest up to Rs. 10,000/– in one financial year is exempt from tax u/s 80TTA. It means that if the assessee has an average balance of Rs. 2,50,000/- in his savings account during a fiscal year (on which most banks give interest @4% per annum), the interest would be tax-free. This average would be minimum if the assessee had the savings account with banks offering higher interest rates.
Interest Rate on Savings Account – Section 80TTA
- The RBI fixed earlier the Interest Rates on Savings Bank Account, and it was 4% per annum. This Interest Rates were controlled by RBI and all authorized banks were needed pay the same interest rates irrespective of the amount of money deposited in the Bank.
- However from 25th October 2011, onwards Reserve Bank of India de-regularized this system of fixing the Interest Rates. This means that all authorized Banks were now free to fix the Interest Rates to be paid on the savings accounts. This phenomenon leads to different banks paying different interest rates, and this is how it should be in a free economy.
Moreover, Reserve Bank of India stated that Banks can also opt for the option of paying differential interest rates if the amount is less than Rs. 1,00,000/-(Rs. 1 Lakh) and a different interest for the amount of Rs. 1,00,000/-(Rs. 1 Lakh).
Interest earned on regular savings bank account maintained by a banking company, co-operative society, or post office up to a maximum of Rs. 10,000/- will be exempted from income tax. This will be over and above Rs. 1,00,000/- deduction under section 80C.
Section 80TTA at a Glance
Section 80TTA allows to an Individual or Hindu Undivided Family from assessee total gross income if it includes any income by way of interest on deposits in a savings account a deduction amounting to the following conditions.
- In a case where the amount of such income does not exceed in the aggregate Rs. 10,000/- the whole of such amount.
- In any other case, Rs. 10,000/-
If such savings bank account is maintained as,
- The banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any banking institution referred to in section 51 of that Act).
- Co-operative society occupied in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank).
- Post Office as per clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898).
There shall, by and subject to the provisions of this section, be allowed, in computing the total income of the assessee a deduction as specified here under.
- Where the income referred to in section 80TTA is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed u/s 80TTA in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.
Interest on Savings Account v/s Fixed Deposit
- Under a Fixed Deposit, the taxpayer is required to deposit the amount with the bank for a specified period. But in a savings account, the assessee can withdraw the amount anytime.
- As the amount of a fixed deposit is with the banks for a fixed period, it pays a higher interest as compared to the interest on Bank savings account.
- But, No deduction is allowed for the Interest earned on Fixed Deposits, and it is taxable as per the Income Tax Slab Rates of the recipient individual. Moreover, TDS at the rate of 10% is also deducted on the Interest on Fixed Deposit if the Interest earned is more than Rs. 10,000/-.
- On the other hand, a deduction of Rs. 10,000/- is given for Interest on Savings Bank Account. Moreover, No TDS is deducted from the Interest on Savings Account irrespective of the amount of Interest earned. The Income earned from Interest is disclosed under the head of Income from Other Sources.
Even though, a deduction of Rs. 10,000 is given to the Interest on Savings Account and not on Fixed Deposits; still Fixed Deposits are advisable as the Interest paid on Fixed Deposits is substantially higher as compared to the Interest paid on Savings Accounts. PPF Account is also a good investment option for someone interested in investing in Tax Free Fixed Income earning Investments.
Must Read: All about PPF Account