Most of us know that the interest earned from the savings bank account has to be declared in the income tax return under the head Income From Other Sources (IFOS), taxable at a slab rate.
In this regard, a deduction is available under section 80TTA as a part of the government’s efforts to encourage taxpayers to save money. And there is also another section, section 80TTB, which provides a higher deduction for senior citizens.
Deduction u/s 80TTA
An individual/HUF is eligible to claim a deduction of up to ₹10,000 for interest earned on the savings account. If interest income from all the savings accounts is less than ₹10,000, the entire amount is deductible.
This means that if someone earns ₹30,000 as interest, he/she has to pay income tax on ₹20,000. And if the interest earned is ₹8,000 then the whole amount would be deductible.
It is always favorable to keep a minimum balance in savings accounts with banks.
Interests eligible for this deduction:
- Savings bank accounts
- Cooperative banks
- Post office
Deduction u/s 80TTB
A resident individual or HUF aged 60 years or above is eligible to claim a deduction of up to ₹50,000 on interest Income. Hence, it includes senior citizens as well as super senior citizens.
Interest income eligible for this deduction:
- Bank Deposits: Saving account, Fixed Deposits & Recurring deposits
- Deposits from Cooperative Societies,
- Deposits from Post Office
For example, Manish, aged 75 years has interest income from fixed deposits of ₹25,000, savings interest of ₹12,000, and deposits from the post office of ₹10,000.
So, Manish’s total interest income is ₹47,000, which is entirely deductible u/s 80TTB as it is less than ₹50,000.
Difference between sections 80TTA and 80TTB
Deductions are disallowed by the ITD if the interest income is set off against any losses
For instance, a taxpayer filed an ITR, reporting a salary income of ₹ 5 lakhs, savings interest of ₹6,000, and there’s a non-speculative business loss of ₹13,000.
In this case, first, the loss would be set off against the interest income of ₹6000 (₹13000 - ₹6000) and then, the remaining amount (₹5,000) is carried forward to future years.
Hence, a taxpayer would not be eligible for an 80TTA deduction as the IFOS is already set off.
Note: The deduction u/s 80TTA and u/s 80TTB are not available under the new tax regime.
Have doubts? Ask them out!