Income Tax on Interest from Savings Account

Section 80TTA of the income Tax Act deals with deduction with respect to interest income from savings Bank Account. Section 80TTA does not apply to interest income from fixed Deposits. Deduction u/s 80TTA is available to an individual assessee and also a HUF. Deduction is allowed for interest from savings Account held with a Bank, Co-operative society or a post office.
PURPOSE OF SECTION 80TTA
The reason for introducing this deduction into the income tax act is to promote savings among the salaried individuals. Taking lessons from the economic downturn in the US, India government has cotempted to act. This has led to drafting this provision in a record time of 6 months and introducing it in the Budget.
SECTION 80TTA DEDUCTION
The maximum deduction an individual or HUF can claim under this section cannot exceed Rs.10,000. It is hereby mentioned that this deduction is not available for interest from savings Accounts held by firms or BPOs.
APPLICABLE TO NRI
The ‘NRO Accounts’ do earn just like regular savings Accounts. Therefore, any interest earned by an NRI is also deductible under section 80TTA.
Interest earned on NRE Accounts is not covered under this section, because, such interest is already exempt from tax.
A NRI can claim interest Deduction under 80TTA, whether the account is maintained with a public sector or a Private Sector Bank.
RECURRING DEPOSITS COVERED UNDER 80TTA
As the words ‘Savings Account’ were clearly mentioned in the section, it is easy to conclude that any interest income earned from Recurring Deposits is not deductible under section 80TTA.
Any income from Recurring Deposits are liable to Tax and the payer shall also deduct TDS at the rate of 10%.
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