Section 80TTA Deduction...Save upto 10K

The Finance Bill 2012 has proposed to insert a new section 80TTA in the Income Tax Act – 1961 which will provide deduction up to Rs. 10,000/- to an Individual/ HUF from Gross Total Income towards Interest on saving bank A/c (not being time deposits) maintained with a bank / society / post office. The deduction admissible shall be interest received or Rs. 10,000/- whichever is lower.

It is also proposed to provide that where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.

The section is applicable with effect from April 01, 2013 and will apply from AY 2013-14 and onwards.

Explanation—For the purposes of this section

• “Time Deposits” means the deposits repayable on expiry of fixed periods.
• banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);
• co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or
• Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898)

Few Clarifications on 80TTA (Amendments)

With above basic coverage on the provision proposed to be incorporated, few FAQ’s are as under:

1. The deduction towards interest on all saving accounts taken together cannot exceed Rs. 10,000/-. If the interest on saving bank account received is Rs. 12,500/-, then effectively only Rs. 2,500/- will be taxable.
2. The deduction is in addition to deduction of Rs. 1 Lacs admissible u/s 80C of the Income Tax Act-1961.
3. As already mentioned, the maximum amount of deduction admissible u/s 80TTA can not exceed Rs. 10,000/-. If you will be receiving Rs. 31,850/- from three saving accounts, you will be entitled for Rs. 10,000/- only as deduction u/s 80TTA & the balance amount of Rs. 21,850/- will be taxable.
4. The filing of income tax return would not be mandatory if your Gross Total Income is below the applicable basic exemption limit even though interest on saving accounts exceeds Rs. 10,000/-.
5. The interest to be offered for taxation depends upon the method of accounting regularly followed by the assessee in recognizing the income.

If Assessee is following cash (Receipt) system of accounting then the interest income has to be offered at the end of FD Tenure i.e., at the time of maturity of FD. If Assessee is following mercantile (Accrual) system of accounting then interest income is required to be offered for taxation every year on due basis as income of that year only.

In view of the Circular No. 371 dated 21.11.1983 issued by the Central Board of Direct Taxes (CBDT), we advise the readers to offer the interest on Bank FDR on accrual (due) basis only.

Analysis/Conclusion

The insertion of this new section has been a relief to individual or Hindu undivided family as interest on saving bank account was always a taxable income with no corresponding tax benefits. It would also help in avoiding inclusion of small savings bank interest in the taxable income, which was required to be done after deletion of section 80L.