Section 80TTA of Income Tax Act

What is Section 80TTA of the Income Tax Act?

The interest amount that you earn on your deposits in your savings account can be taxed. Hence, in order to encourage the citizens to make small savings, the government has come up with several tax benefits on your basic savings account. Section 80TTA of the Income Tax Act was introduced to cater to this aim.

Under section 80TTA of the Income Tax Act, 1961, you are allowed to claim a deduction on your savings account deposits which have been held in a cooperative society, bank, or post office. It must be noted that the amount of exemption which has been sought must be lower than Rs. 10,000. This section has been a part of the Finance Bill since 2013 and has been providing tax-relief to taxpayers since. 

Let us take a detailed look at the several Section 80TTA deductions, exclusions, eligibility criteria, and other provisions of this section to help you understand all its dimensions better so that you can claim your tax exemptions with more clarity!

Features of Section 80TTA

Below mentioned are a few features of section 80TTA of the Income Tax Act, 1961:

• The tax exemption limit u/s 80TTA for taxpayers is Rs. 10,000 per annum.

• Only Hindu Undivided Family (HUF) and Individuals can claim this tax-saving benefit.

• The eligible persons can own several savings accounts with different banks, however, the total interest amount to be claimed for tax deduction should not exceed Rs. 10,000. Any interest amount exceeding Rs. 10,000 will be subject to tax. 

• The tax deduction u/s 80TTA of the Income Tax Act is beyond the deduction of Rs. 1,50,000, and this amount gets deducted u/s 80C.

• The HUFs and individuals cannot hold any Tax Deducted at Source (TDS).

• If the Gross Total Income of an individual is less than the lower limit of the income level that’s taxable, then section 80TTA will not be applicable irrespective of whether the interest income amount crosses the limit of Rs. 10,000. Let’s take an example. Suppose the income for a person for a particular financial year is Rs. 2,00,000, then he can claim the tax deduction. However, if an interest amounts to Rs. 50,000 out of the income of Rs. 2,00,000, this amount still cannot be taxed since the total income crosses the tax liability scope and that of applying the section 80TTA does not get attained. In such a case, the person is not required to file the income tax return.

• The below mentioned financial institutions are included as per section 80TTA:

1. Banks: These financial institutions are the banking companies formed according to section 51 of the Banking Regulation Act, 1949. 

2. Post Offices: These financial institutions are the ones which are formed by the government and are demarcated under section 2 - clause (k) of the Indian Post Office Act of 1898. 

3. Cooperative Societies: These are the autonomous people’s associations which are involved in taking care of businesses which resemble banking within a particular community that’s driven by similar cultural, social, and economic goals. For example, Cooperative Land Mortgage Bank or Cooperative Land Development Bank.

Eligibility Criteria for Claiming Deductions u/s 80TTA

As per the Income Tax act, the deductions u/s 80TTA are claimed by the below mentioned persons:

• Taxpayers who fall under the categories of Hindu Undivided Family (HUF) and Individuals.

• Residents of India. 

• Non-residents of India who own NRO (Non-resident Ordinary) savings accounts.

• An entity who owns a savings account at financial institutions such as post offices, banks, or cooperative societies.

Exceptions Under Section 80TTA

Below mentioned are a few exclusions under section 80TTA of the Income Tax Act, 1961:

• Tax deduction under this section cannot be claimed if the gross total income of an entity is below the minimum threshold of the taxable income slab.

• Senior citizens are not eligible for claiming the tax exemption under this section.

• The tax deduction under this section are not applicable to the following deposits:

• Term Deposits

• Fixed Deposits

• Recurring Deposits

• Deposits from Non-banking Financial Companies (NBFCs).

• NRIs who have an Non-resident External account are not eligible for claiming tax deductions u/s 80TTA since such accounts are exempted from taxation.

Difference Between Sections 80TTA and 80TTB

It is important to know about the stark differences between the provisions of sections 80TTA and 80TTB of the Income Tax Act in order to avoid any kinds of confusion. Below mentioned table points down certain differences between both the sections:

Conclusion

Most people who have savings accounts are not aware of this section and its tax-benefit features. Section 80TTA of the Income Tax Act, 1961, deals with tax deductions on the interest amount earned on your income with a maximum limit of Rs. 10,000 per year. Knowing about the section and its various provisions and aspects can help you mitigate your tax liability and help you save on tax.

Depending on the tax bracket a taxpayer is in, there is a maximum amount of tax that can be saved using the 80TTA.

The highest amount of tax that can be saved if your total income is under the 20% tax bracket is Rs. 2,000 as opposed to the deduction of Rs. 10,000 under 80TTA. Similarly, the most you may save if you fall within the 30% tax bracket is 3,000.

The purpose of Income Tax Act Section 80TTA is to promote improved financial management. As a result, it saves people from having to worry about including insignificant interest amounts when submitting their tax returns, helping them avoid paying tax on income from modest deposits and large investors.