The deadline for filing your income tax return (ITR) for financial year 2022-23 is July 31, 2023. While filing your ITR, it is important to avail of all the available deductions.
One such deduction is on the income earned as interest on your savings account. Many people may be unaware that the interest earned on their savings account is tax deductible. Incidentally, one can save tax on the interest earned up to Rs 10,000 by simply mentioning it while filing their ITR.
To facilitate this tax exemption, the income tax department has introduced Section 80 TTA and Section 80 TTB under the Income-tax Act, 1961. This provision allows a deduction of Rs 10,000 on the interest income earned from savings accounts.
Senior citizens can claim a deduction of up to Rs 50,000 under Section 80 TTB. In other words, only the interest earned above Rs 10,000 (or Rs 50,000 for senior citizens) is taxable.
Let’s consider an example to better understand how this works. Let’s say you have a gross income of Rs 10 lakh after earning Rs 35,000 in interest from your savings account. In this case, a deduction of Rs 10,000 will be subtracted from your gross income of Rs. 10 lakh.
Says CA Charly Rajan, “You can find collective information pertaining to your interest receipts in your Annual Information Statement (AIS). Then while filing ITR, include your deductions under 80TTA under ‘Income from Other Sources’ in the ITR form applicable to you.”
Next, calculate your gross total income for the financial year by considering all your income sources and then show the deduction under Section 80TTA.
This tax-saving benefit applies to individuals and Hindu Undivided Family (HUF).
“Where interest income is derived in respect of the saving account held by or on behalf of a firm or association of persons (AOP) or body of individuals (BOI), no deduction shall be allowed to the partner or member in such firm or AOP or BOI, as the case may be,” the income tax department says.
It even applies to non-resident Indians (NRIs). NRIs are only permitted to open NRE and NRO accounts in India. An NRO savings accountholder can claim the benefit of Section 80TTA, as the interest earned on NRE accounts is already tax-free.
This tax exemption is not applicable to those who opt for the new tax regime. To be eligible for this deduction, one must receive interest income from a savings account with a bank, cooperative society, or post office, and choose the old tax regime. Additionally, it’s worth noting that interest income earned on fixed deposits, recurring deposit, and time deposits are not eligible for tax deduction under Section 80TTA.
A taxpayer cannot claim Section 80TTA deduction if the individual has opted for the new tax regime under Section 115BAC.
The old tax regime also allows for many additional deductions under Section 80C, such as investments in Employees’ Provident Fund (EPF), Public Provident Fund (PPF), equity linked savings scheme (ELSS), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), Senior Citizens Savings Scheme (SCSS), payment of life insurance premiums, and the principal on home loan repayments.
In addition, Section 80CCD (1B) allows an additional deduction of up to Rs 50,000 for the amount deposited in New Pension Scheme (NPS). By taking advantage of these tax-saving strategies, you can reduce your tax liability and maximise your savings on the interest earned from your savings account.