In India, income tax deductions are allowed to encourage individuals to save for their future and also to promote certain activities that benefit the economy. These deductions help individuals reduce their taxable income and therefore, their tax liability.
By promoting savings and investments, the government aims to encourage financial planning and stability among taxpayers. Additionally, deductions for health insurance and education loans promote access to essential services, and deductions for charitable donations encourage philanthropy and social responsibility.
Interest earned on savings accounts is taxable under the Income Tax Act. However, a deduction on the interest earned on savings accounts can be claimed under Section 80TTA of the Income Tax Act.
The deduction on interest earned on savings accounts under Section 80TTA provides a small relief to taxpayers and encourages savings.
How Much Interest One Can Deduct Under Section 80TTA Of IT Act?
Under section 80TTA of the Income Tax Act, an individual can claim a deduction of up to Rs. 10,000 on the interest earned on savings accounts with banks, co-operative societies, and post offices. This deduction is available to individuals and Hindu Undivided Families (HUFs).
If the interest earned on savings accounts exceeds Rs. 10,000 in a financial year, only Rs. 10,000 can be claimed as a deduction under section 80TTA.
Exceptions Under Section 80TTA
It’s important to note that this deduction is not available for interest earned on fixed deposits, recurring deposits, or any other kind of investment. Also, the deduction is allowed only on the interest earned and not on the principal amount deposited in the savings account.
Furthermore, if an individual earns interest income from multiple savings accounts, the deduction of up to Rs. 10,000 can be claimed only once. Any interest income above this limit will be taxed as per the individual’s applicable tax slab.
This deduction is applicable for individuals/HUF only (other than Senior Citizen). Senior citizens are allowed deduction u/s 80TTB instead of 80TTA from AY 2019-20 onwards.
How To Claim Deduction Under Section 80TTA?
You can claim the deduction while filing income tax return, under the ‘Income from Other Sources’ section. Report the total interest income earned on savings accounts.
Then, under the same section, claim a deduction under Section 80TTA up to Rs. 10,000.
Make sure you keep proper records of your bank statements and interest certificates to support your claim.
Some other deductions under IT Act;
Section 80C: This section allows individuals to claim a deduction on certain investments made during the financial year, such as Provident Fund (PF), National Pension Scheme (NPS), Equity-Linked Saving Scheme (ELSS), etc. The maximum deduction allowed under this section is Rs. 1.5 lakhs per year.
Section 80D: This section allows individuals to claim a deduction on health insurance premiums paid for themselves, their spouse, children, and parents. The maximum deduction allowed under this section is Rs. 50,000 per year.
Section 80E: This section allows individuals to claim a deduction on the interest paid on education loans for themselves or their children.
Section 80G: This section allows individuals to claim a deduction on donations made to certain approved charitable organisations. The deduction allowed under this section can be either 50% or 100% of the donation amount, depending on the organisation.
Taxpayers must note that the availability of the above deductions will depend on the tax regime you chose while filing the ITR.
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