This article discusses seeking an interest deduction under Section 8oTTA. But first, what exactly is 80TTA? Section 80TTA allows for a Rs 10,000 deduction on interest income. Individuals and HUFs are both eligible for this deduction. Savings account deposits deposited in a post office, bank, or co-operative organization can be deducted under Section 80TTA of the Income Tax Act. The amount of the exemption sought should be less than Rs.10,000. Let’s know more about the details of 80TTA deductions.
Which types of interest income are deductible under Section 80TTA?
- From a bank’s savings account
- From a savings account with a co-operative organization engaged in banking
- From a post office savings account
Interest Income Is Not Deductible Section 80TTA states that
Time deposits must be repaid at the end of a set period. It shall not be permitted due to the following aspects:
- Fixed-term deposit interest
- Recurring deposit interest
- Any further time deposits
Deduction pursuant to Section 80TTA
According to the Income Tax Act, Section 80TTA is titled “Deduction for interest on deposits in savings accounts.”
Here are some of the highlights of this section:
- You can claim an exemption of an amount up to Rs. 10,000 on interest earned on savings account deposit funds.
- The savings account can be in any of the financial institutions listed below:
- Co-operative banking society
- Postal service
- You can claim exemption on an unlimited number of savings accounts if the total amount sought is less than Rs. 10,000.
The Maximum Deduction Permitted Under Section 80TTA
The maximum deduction amount is Rs 10,000. If your interest income is less than Rs 10,000, you can deduct the entire amount. If your interest income goes beyond Rs 10,000, your deduction is limited to Rs 10,000. (You must consider your total interest income from all banks with which you have accounts.)
Exceptions following Section 80TTA
Section 80TTA applies only to savings accounts and does not apply to term deposits, fixed deposits, or recurring deposits.
Banking Interest Rate Changes
Previously, the Reserve Bank of India (RBI) fixed the savings account interest rate at 4%. Banks also paid interest based on the minimum balance in a quarter. However, the RBI also allows banks to set more excellent interest rates if they desire, and several banks are currently giving 6% interest on savings accounts. Banks now calculate interest on a daily balance rather than a minimum amount.
This means that you will most likely receive greater interest rates per quarter than before. Checking your bank statement once a month will assist you in keeping track of this. If your savings accounts earn more than Rs. 10,000 in interest in a fiscal year, you can only claim a deduction of up to Rs. 10,000. The remaining interest amount will be applied to your overall income and taxed accordingly. This was all about the system of 8otta deduction and its various components. Click here to get more information on payment of TDS.