There are various investments that generate interest income for an individual like fixed deposits, bonds, savings account deposits, recurring deposits, etc. One can claim income tax deduction for certain specified interest incomes provided the individual is eligible and has chosen the old tax regime. While senior citizens have some special deduction benefits, few benefits are available to all individual taxpayers. We tell you how to check if your investment is eligible for deduction or not and how much benefit you can get.
Also read: How selling equities before March 31 can help you save tax.
What tax deduction can be claimed for savings account interest income?
An individual can claim a tax deduction for interest earned on money kept in savings bank accounts under section 80 TTA of the Income-tax Act, 1961. "The interest deduction available under section 80TTA would be restricted to only savings account interest from banks, co-operative banks, and post offices. The quantum of such deduction under section 80TTA would be restricted to Rs 10,000," says Dr. Suresh Surana, founder, RSM India, a tax and business consulting group.
Also read: 11 ways of tax savings for salaried individuals for FY 2023-24.
Section 80TTA tax deduction is only available if deposits are held at these institutions
Deduction under section 80TTA is available only for interest income from savings accounts and not fixed deposits or recurring deposits. Further, it is available only if the deposit is being held at certain institutions.
According to Neeraj Agarwala, Partner, Nangia Andersen India, a tax and business consulting group, "Savings account interest income derived from deposits held in banking institutions, cooperative societies engaged in banking activities, and Post Offices is eligible for deduction. Consequently, interest earned from cooperative societies is admissible for deduction provided they function akin to banking entities, including entities like co-operative land mortgage banks or co-operative land development banks."
Only senior citizens get a tax deduction for interest on fixed deposits and recurring deposits
Under section 80 TTB, a senior citizen can claim an income tax deduction of up to Rs 50,000 for any type of interest from deposits held in savings, FD and RD accounts. Tax experts say that the type of interest is the key point of distinction between tax deductions under section 80TTA and 80TTB.
"Section 80 TTB provides a wider scope to claim deduction i.e. any type of interest (i.e. interest on savings and/or term deposit) earned from savings accounts, fixed deposits, and recurring deposits with banks, co-operative banks, and post offices. Such deduction can be claimed for the entire amount of interest subject to maximum deduction of Rs 50,000 by resident senior citizens," says Surana.
Which interests cannot be claimed under section 80 TTB or 80TTA?
There are other instruments like bonds, debentures, corporate fixed deposits, etc with which an investor can earn fixed interest income, however, these interest incomes are not eligible for tax deduction either under section 80 TTB or 80 TTA.
"Under section 80TTA, deductions are limited to interest earned on savings bank accounts exclusively. Consequently, interest from other sources such as fixed deposits, recurring deposits, and savings accounts won't qualify for this deduction. Under section 80 TTB, tax deduction is applicable to all interest income derived from deposits up to Rs 50,000," says Agarwala.
However, this deduction is available only to individual taxpayers. "No deduction is permissible for individual members of firms, associations of persons, or bodies of individuals for interest income derived from deposits held collectively by such entities," says Agarwala.
However, senior citizens claiming deduction under section 80TTB cannot make a claim under section 80TTA as well. They must opt for only one of these sections to claim deductions on interest income. For senior citizens, it makes sense to go for 80TTB it has a higher limit and covers all the eligible interest incomes.
How to claim interest deduction while filing income tax return
While filing your ITR you must ensure that you fill in the details of interest earned to claim a deduction on interest income under section 80TTA or 80TTB. Tax experts say that taxpayers should corroborate interest details through bank statements, interest certificates and Form 26 AS. If there is a discrepancy it should immediately be raised with either the bank or the feedback system of the income tax department.
"Individuals can avail deductions under section 80TTA and 80TTB annually, based on the interest income accrued but not yet due. Typically, interest earned on savings accounts is credited promptly to the account holder, minimising any time lag. This amount is reflected in Form 26AS of the individual. Nonetheless, it's advisable to corroborate the interest details through bank statements and interest certificates to ensure comprehensive declaration of all interest income in the income tax return," says Agarwala
