Claiming tax deductions can be fairly confusing. To make things easier, we’re going to tell you all you need to know about claiming a deduction on interest under Section 80TTA.
What is Section 80TTA?
That’s the million dollar question. You’re probably already at sixes and sevens regarding the incredible number of Income Tax sections out there. Well, here’s one more to add to it.
We’re talking about Section 80TTA. Whether you’ve come across this particular section or not on your never-ending quest to truly understand the world of taxation, it would be prudent of you to know what this section entails.
In short, Section 80TTA allows taxpayers to claim a deduction of Rs. 10,000 on interest income. However, this deduction can only be claimed by an individual of a Hindu Undivided Family (HUF)
Additional Reading: Money Sitting In Savings Account? Time To Start Investing!
How can this deduction be claimed?
Deduction under this section can only be claimed on the following:
- Interest earned on a Savings Account with a bank
- Interest earned on an account held with a co-operative society that is conducting the business of banking
- Interest earned on a Savings Account held with a post office
What is this deduction not allowed on?
As with just about everything related to tax, there are some limitations on what you can and cannot claim. Section 80TTA is no different in this respect.
Keep in mind that deductions under this section cannot be claimed on any interest that may have been earned on time deposits. In a nutshell, a time deposit is a deposit that is repayable following the expiry of a fixed period of time.
Hence, deductions under Section 80TTA cannot be claimed on:
- Interest earned on any Fixed Deposits
- Interest earned from any Recurring Deposits
- Interest earned from any other time deposits
Additional Reading: Want To Earn Income From Investments Without Paying Tax? Try Tax-Free Bonds
What is the maximum deduction that can be claimed?
The maximum deduction an individual of an HUF can claim under Section 80TTA is Rs. 10,000.
Let us say your interest income is below Rs. 10,000. In this case, the entire interest income amount is eligible for deduction.
However, if your interest income happens to be more than Rs. 10,000, then your deduction will be limited to Rs. 10,000 only. Any interest that you earn over Rs. 10,000 will be deemed to be ‘Income from other sources and will be taxable.
Remember that you have to take the total interest from all accounts that you hold with their respective banks into consideration.
Additional Reading: Here’s How Buying Insurance Can Help You Pay Lower Tax
How to claim deduction under Section 80TTA
To help you calculate your interest income as well as the tax deduction you can claim on your interest income, all you’ll need are your bank statements of all your Savings Accounts in whichever banks they’re held in.
Add the total interest income from all your statements and enter it under the head ‘Income from other sources’ in your tax returns form. The deduction will be shown under Section 80 Deductions under Section 80TTA of the Income Tax Act.
Additional Reading: Go For ELSS To Build Wealth And Save Tax
There you have it! Not as complex as you may have thought. Next time you file your returns, don’t forget to claim deductions under Section 80TTA. You could save a cool Rs. 10,000 in tax.
Interested in other investments that can help you save on tax? Well, you’ve come to the right place. We have a ton of options for you ranging from Mutual Funds to Fixed Deposits and much more. Just click on the link below to open yourself up to the wonderful world of investing.