Most of us are not aware that interest received on savings bank account is taxable. However, the good news is that individual can save taxes on interest received up to Rs 10,000 and mention the same while filing their income tax return (ITR). Notably, the deadline for filing ITR for financial year 2022-23 (assessment year 2023-24) is July 31, 2023.
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Tax exemption on savings accounts' interest
Section 80TTA of the Income Tax Act, 1961 provides a deduction of Rs 10,000 on interest income earned on savings accounts. In case the individual is a senior citizen, a deduction of up to Rs 50,000 can be claimed under Section 80TTB. In other words, it means that only interest earned beyond Rs 10,000 (or Rs 50,000 in case of senior citizens) is taxable.
To illustrate, in case of the general public, if an individual has gross total income of Rs 10 lakh and savings account interest of Rs 25,000 a deduction of Rs 10,000 will be made from the gross total income.
Eligibility
Section 80TTA deduction is available to individuals and HUF. NRIs can also avail a deduction under this but only on the NRO savings account holders.
This is not applicable for those who opt for the new tax regime.
Taxpayers opting for the old regime are eligible to claim the deduction if the interest income is received from a savings account with a bank, cooperative society or post office. The tax benefit can be claimed for any number of accounts till the aggregate interest amount of Rs 10,000.
Interest earned from fixed deposits, recurring deposits and time deposits are not allowed under Section 80TTA.
How to claim deduction while filing ITR?
To claim the deduction, taxpayers will first have to add the total interest income under the head ‘Income from Other Sources’ while filing ITR. Then, they should calculate the gross total income from all the income heads and then show it as a deduction under Section 80TTA.
