Interest in savings accounts is taxable and should be reported as your income. Note that it is a misconception that interest income from savings bank accounts is tax free. However, as per Section 80 TTA, you can claim deductions of up to Rs 10,000 on such interest constituents earned.
80TTA deduction
The Rs 10,000 deduction limit applies to the total interest received across all your savings’ accounts, not to each account, regardless of the savings account interest rate offered. If your interest income exceeds this limit, the excess amount is taxable under your applicable income tax slab.
How to report interest income?
To accurately report your savings account interest income –
· Collect all your savings account statements for the previous financial year.
· Identify the interest credited to your account(s).
· Add up all interest amounts for a total.
· If the total interest is below Rs 10,000, claim the deduction. If it exceeds, report the excess as income.
Section 80TTA vs. Section 80TTB
| Particulars | Section 80TTA | Section 80TTB |
| Applicability | Applicable to individuals who are below the age of 60 years. This makes it relevant to most of the working people, who receive interest on their savings accounts. | Designed just for the elderly, who are 60 years of age or older and live in India. This part recognises the elderly’s financial requirements by providing them with more opportunities to generate interest income while also receiving a higher tax relief. |
| Income specified | This section specifically targets interest income earned from savings accounts held with banks or post offices. It focuses primarily on interest income, indicating the intention to encourage savings among the general public. | Increases the scope greatly by adding interest income not just from savings accounts, but also from fixed deposits, recurring deposits, and other similar investment vehicles. This acknowledges the diverse investing requirements and preferences of senior citizens. |
| Deduction limit allowed | Offers a deduction limit of up to Rs 10,000 on the interest income earned. This limit is standardised for all eligible individuals, providing basic tax relief on smaller interest incomes. | Extends a more generous deduction limit of up to Rs 50,000, acknowledging the higher dependency of senior citizens on interest income for their daily expenses and medical needs. This higher limit significantly enhances the tax-saving opportunities for senior citizens. |
| Exceptions | The deduction under this section is strictly limited to interest earned on savings accounts. It explicitly excludes interest from term deposits, fixed deposits, or recurring deposits, aiming to simplify the tax benefits specifically around savings accounts. | Specifies exceptions in terms of eligibility: Partners of firms or members of an Association of Persons (AOP) or a Body of Individuals (BOI) cannot claim deductions under this section. Additionally, Non-Resident Indians (NRIs) are explicitly excluded from availing these benefits, focusing the deduction on resident senior citizens. |
| Who cannot avail | Except for age and kind of interest income, the section applies to all people under the age of 60. | This section clearly explains which persons, other than elderly citizens, are ineligible for deductions. It further reiterates that NRIs, regardless of age, are not eligible for the benefits provided by this provision. |
Final thought
Being financially wise entails learning how savings account interest is taxed and making use of available deductions to reduce tax liabilities. Whether you are under 60 and entitled to the Rs 10,000 deduction as per Section 80TTA or a senior citizen seeking to claim up to Rs 50,000 as per Section 80TTB, you must appropriately declare your interest income. This guarantees that you comply with tax regulations while also successfully managing your tax responsibilities. By being proactive in your tax preparation, you may improve your financial health.
