Introduction:

As per the revised norms of the RBI, banks are now able to charge comparatively high interest rates on savings accounts. Currently, banks are expected to charge interest based on the daily balance of the account rather than the minimum level that needs to be kept. Those who own savings accounts can now benefit from higher interest rates than they did previously.

This is where Section 80TTA of the Income Tax Act becomes relevant. If the interest income from a savings account exceeds ₹10,000 in a financial year, the account holder is eligible to claim a tax deduction of up to ₹10,000.

Section 80TTA:

• Section 80TTA of the Income Tax Act provides deductions upto ₹10,000. If the interest from a savings account exceeds ₹10,000 in a financial year
• Section 80TTA, effective since the financial year 2012–2013, offers a deduction on the interest earned from a bank, cooperative or postal savings account..
• Income earned from interest is viewed as taxable under the category of other sources.. If you are obligated to file a tax return, it is essential to disclose any interest income earned during the financial year. Utilizing the deduction provided under Section 80TTA enables you to decrease the tax liability on the interest from your savings account, and in some cases, you may end up paying no tax if the interest earned is less than ₹10,000.
• Interest earned from fixed deposits is not eligible for the deduction under Section 80TTA.. This deduction is available for individuals, excluding resident senior citizens and HUFs. Resident senior citizens in India can benefit from a similar deduction under Section 80TTB.

Interest Income eligible for deduction: 

Section 80TTA allows deduction for the following types :

• Interest earned from savings accounts maintained with cooperative societies involved in banking.
• Interest generated from savings accounts maintained with post offices.
• Interest earned from savings accounts held with banks.
•  Individuals can claim a maximum deduction of up to ₹10,000. Therefore, if your total interest income is equal to or less than ₹10,000, the entire amount becomes deductible
• It’s important to note that one must consider the cumulative interest income from all the banks where an individual holds savings accounts.

Not Eligible for Tax Deduction: 

Not all types of interest income fall under the purview of Section 80TTA. Specifically, interest from time deposits is excluded as per Section 80TTA. Time deposits refer to deposits repayable upon the expiration of fixed periods.

Hence, the categories of interest income not qualifying for a deduction under Section 80TTA include:

• Interest  from fixed deposits.
• Interest  from recurring deposits.
• Interest from other time deposits.

Characteristics of Section 80TTA:

The availability of the deduction under Section 80TTA is available  upon meeting prescribed conditions. The following conditions are listed, and all of them must be satisfied to avail the deduction.

• The savings account must be held with a bank, cooperative society, or post office.
• The individual or Hindu Undivided Family (HUF) claiming the deduction must meet the criteria.
• The savings account must be registered in the name of the individual claiming the deduction.
• The deduction is applicable to interest income generated from savings accounts.

Maximum Deduction Under Section 80TTA:

The maximum deduction is capped at Rs 10,000. . If your interest income totals less than Rs 10,000, you can claim the entire amount as your deduction. However, if your interest income exceeds Rs 10,000, your deduction will be capped at Rs 10,000. It’s important to factor in your total interest income from all banks, especially if you maintain multiple accounts.

Conclusion:

Section 80TTA has prompted increased savings in low-risk options like savings accounts, as prior to its introduction, low interest rates and tax implications led to a shift towards riskier alternatives. To benefit from the tax deduction under Section 80TTA, understanding proper tax return filing is essential. While Section 80TTA of the Income Tax Act currently allows for a deduction of up to ₹10,000, which may be on the lower side, this limit could be considered for revision in the upcoming Union Budget.