Section 80TTA Deduction Interest Deposits Savings Account: A Savings Bank Account is the most general account for individuals. When an individual has money in a bank savings account, their ey, they are required to pay the tax on it.
But Income Tax Department under section 80TTA gives a deduction of up to Rs 10,000 on interest collected on all their saving bank accounts. This article helps calculate the interest in saving bank account, the interest on considered Income from other sources, and taxing Saving Bank account. This explains what section 80TTA is and how it influences tax on interest from saving bank account.
Overview of Saving Bank Interest, 80TTA
The interest is actually calculated on the daily balance in your account.
Before April 2010, the interest was actually calculated on the lowest amount in the bank account between the 10th of every month and the last business day of that month.
In Apr 2010, the Reserved Bank of India moved to calculation on an everyday basis.
On a daily basis, interest rate calculations are done, and the interest is credited to the account only at the end of half-year or each quarter.
Interest collected on Saving Account is acknowledged as Income from other sources. This requires to be declared in their income tax returns.
No TDS is subtracted from the interest on Saving Bank Account.
It is taxed based on the income slabs of the individual.
As per Section 80TTAÂ of 1961’s Income Tax Act, which implements Deduction up to Rs. 10,000 to a HUF/Individual from Gross Total Income towards Interest on all the saving bank Accounts (not the Fixed deposits).
An individual is required to add the interest from the saving account to Income from additional sources and then demand deduction under section 80TTA. If a person’s total interest income from all their saving bank accounts is equal to or less than Rs 10,000, For example, if the total interest of a person from all saving bank accounts is Rs 8,000, then they are required to show 8000 in income from additional sources and then record Rs 8000 for section 80TTA.
If the final balance is more than Rs 10,000, say 13,000, then one should add 13,000 to Income from additional sources and then show Rs 13,000 in Section 80TTA. ITR should automatically provide the person with a deduction for 10000 and calculate tax on the rest.
If you have a doubt about Interest on a Saving Bank account in Income Tax Return then as explained in our article, tax on Income obtained in India depends on the type of Income, for example, Income from Pension or Salary, Income from House Property etc. Under the category of Income from Additional Sources from ITR1 and ITR2, Income Interest from Saving Bank Account falls in.
Income Tax Return Forms have section 80TTA in Deductions under Chapter VI-A along with 80C, 80D for ITR1. (It’s similar for ITR2) One is required to add interest from their saving account to Income from additional sources, and then they can claim the deduction under section 80TTA. If a person’s total interest income from all their saving bank accounts is equal to or less than Rs 10,000, For example, if the total interest of a person from all saving bank accounts is Rs 8,000, then they are required to show 8000 in income from additional sources and then record Rs 8000 for section 80TTA.
If the final balance is more than Rs 10,000, say 13,000, then one should add 13,000 to Income from additional sources and then show Rs 13,000 in Section 80TTA. ITR should automatically provide the person with a deduction for 10000 and calculate tax on the rest.
Interest on Saving Bank Account
How has the interest rate on the Saving Bank account changed over the years?
The interest rate has been around 4% but was about 6% in 1992, on Saving bank account. From the year 2003 to Jul 2011, the Interest rate was fixed at 3.5 %. Every bank had to offer a similar interest rate to all its consumers. Till Oct 2011, it was regulated by the Reserve Bank of India.
Deregulation: The Reserve Bank of India (RBI) deregulated the saving bank interest rates on 25th Oct 2011. The banks will have to offer a consistent interest rate on securities in saving account up to Rs 1 lakh. For savings deposits above the amount of Rs 1 lakh, the banks will be free to offer a varying interest rate. The minimum interest rate was set to be 4% for up to 1 lakh amount in Saving Bank by RBI in 2011.
The Reason behind different Banks offer different interest rates:
In October 2011, the Reserve Bank of India deregulated the rates of interest on savings accounts in India. Banks were now free to determine the same within specific conditions imposed by RBI.
Method Of Calculation Of Interest On The Saving Bank Account?
The interest is actually calculated on the daily balance in your account. Before April 2010, the interest was actually calculated on the lowest amount in the bank account between the 10th of every month and the last business day of that month. In Apr 2010, the Reserved Bank of India moved to calculation on an everyday basis.
Say on 1st September Rs 80,000 is credited into an individual’s account. On 5th September, after some withdrawals balance in the person’s account is Rs 55000. The person had Rs 80,000 for four days. Suppose interest is 5% per annum. So how much interest did the individual earn?
The formula is:
Interest = Principal or amount in the account x Daily Interest x RateNumber of days.
Daily Interest Rate = rate of interest per annum /365 days
At 5% Daily Interest Rate is: 5%/365 = 0.013698%
Example of the steps to calculate interest on Saving Bank Account?
Say Samriddhi had a balance of Rs 85,000 on April 1. She received a payment of Rs 300,000 on May 15 from the sale of some policy units. On May 29, she made a payment of Rs 320,000. This resulted in her account balance lessening to Rs 65,000.
For the first 14 days of May, interest to be paid would be calculated on Rs 85,000, i.e. 130.41
For the next 14 days of May, interest to be paid would be calculated on Rs 385,000, i.e. 590.68
For the balance of 2 days, interest to be paid would be calculated on Rs 65,000. i.e. 14.25
Therefore, the Total interest earned is Rs. 735.34.
When Is The Gained Interest Credited To The Consumer Account?
Though on a daily basis, the interest rate calculations are done, the interest is credited to the individual’s account half-yearly or at the end of each quarter. Today, each bank serves its own schedule, including half-yearly, monthly, and quarterly for paying interest rates on savings accounts. For example, State Bank of India on 30 June and 31 Dec, HDFC banks credit interest on 31st Oct and 31st Mar.
Income Tax and Interest on Saving Bank Account
What is Section 80TTA of the Income Tax Act?
The Finance Bill or Budget 2012 implanted a new section 80TTA in the Income Tax Act of 1961, which implements Deduction up to Rs. 10,000 to a HUF/ Individual from Gross Total Income towards Interest on saving bank Account (not being time deposits).
This abatement is not granted to the saving account of a firm, an association a body of individuals or persons.
Saving a bank account should be sustained within a bank or society, or post office.
The deduction allowed is interest earned or Rs. 10,000, whichever is lower.
If the interest gained is more than 10,000, then the taxable balance amount will be as before, i.e. considered as taxed as per your slab rate and Income from Sources.
Under section 80C, the deduction of the Income Tax Act-1961 states in addition to a deduction of Rs. 1 Lakh. Please regard that Interest from Saving Bank Account as a deduction and not an exemption.
The interest received on the savings account is spared from TDS under Section 194 A of the Income Tax Act, i.e. No TDS is deducted on interest from the saving account of an individual.
The section was made applicable from April 01, 2012, and was applied from Annual Year 2013-14 and onwards.
For example, if the interest received is Rs. 13,500 on saving bank account, then effectively, only Three thousand five hundred rupees will be taxable.
The deduction makes the scheme of non-filing of returns by salaried taxpayers in case of salary income plus savings bank interest up to Rs 5 lakh more friendly, under Section 80TTA.
Is TDS Deducted On The Interest On The Saving Bank Account?
No TDS is not deducted on interest irrespective of the amount of interest earned on the Saving Bank account. Interest from the Saving Bank account does not manifest up in Form 26AS, as TDS is not deducted.
Is Interest Gained In The Saving Account Of A Bank Is Taxable?
Income from other sources is considered as Interest earned on Saving Account. This requires to be declared in their income tax returns. No TDS shall be deducted from the interest on Saving Bank Account. Before 1st Apr 2012, the interest was taxed based on individual income slabs.
From FY 2012-13, a deduction from all the bank accounts up to the extent of Rs 10,00 in interest is granted to an undivided Hindu family or individual under the new section 80 TTA of the Income-tax Act; Interest over Rs 10,000 will be taxed at the peripheral tax rate of an individual. This is relevant from the assessment year 2013-14(Financial Year 2012-13) and consequent assessment years. Note: This deduction is not on Fixed Deposit or RD but just for interest on the Saving Bank account.
Is The Deduction All Saving Bank Accounts Or Per Saving Bank Account Together?
The deduction towards interest on all saving accounts taken collectively cannot surpass Rs. 10,000. This deduction is available on the interest income from all savings bank accounts that a taxpayer might have in banks, post offices or cooperative societies. One cannot have multiple deductions for multiple savings bank accounts.
Example: If an individual gets Rs. 24,250 from three saving accounts, the person will be authorised to Rs. 10,000 only as deduction under section 80TTA & the balance amount of Rs. 14,250 will be taxable as earlier.
What Is The Interest, And How Much Money Should Be In The Account(S) To Earn Rs 10,000 Interest Income?
A person is required to have, to earn an interest income of Rs 10,000
Rs 1.6666 lakh at 6% (.06 * 166660)
Rs 1.42 lakh at 7%
Rs 2.5 lakh at 4%
Self-Assessment Tax:
If the saving bank interest of an individual is more than 10,000, then the person might have to pay Income Tax as per their Income Slab for the balance amount. One would know this in Tax Payable in the ITR.
Note: Many times; due to loss due to House property or Capital Gain, it may get cancelled.
When someone needs to pay tax, Self-Assessment or Regular Assessment tax, Tax Payment Challan, Advance Tax, to pay Income Tax due, ITNS 280 Challan is used.
Self-Assessment Tax, Pay Tax using Challan 280, Updating ITR
It can be paid through cheque or cash by going to a designated branch which is called Offline or physical payment. If an individual has net banking, it can also be paid online.
Select Challan No./ITNS 280(Payment of Income Tax & Corporation Tax)
Select Tax Applicable as (0021 – Income Tax – Other than Companies)
Select Assessment Year. One should be very careful while selecting Assessment Year. For registering ITR before 31 Jul 2016 for income gained between Apr 2015 to 31 Mar 2016 FY is 2015-16, and AY is 2016-17
Then select the type of payment the individual wants to opt for (300) Self-Assessment Tax and fill in the rest details. (You don’t have to fill in Name). It will be filled based on the address and entered PAN detail.