According to a new Section 80 TTA introduced in the union budget last year, savings account interest income up to Rs 10,000 will get a tax deduction as per this section. The savings account which you hold in all banks, that is public sector, private sector as well as foreign banks come under this section. That’s not all, the deduction is applicable even if it is in a co-operative bank or India Post.

Moreover, both individuals as well as Hindu undivided family qualify for this deduction.


All accounts: “Keep in mind, that this deduction of Rs 10,000 on savings account interest income is all bank accounts put together,” said Anil Rego, Chartered Accountant and CEO, CEO of Right Horizons, Investment Advisory and Wealth Management. There is a good possibility that you might be able to make the most of this deduction if you have parked your three-six months emergency funds in savings banks accounts. Many people do this.


Better than FD: In fact, while most banks offer 4.5 percent per annum as rate of interest, there are a few banks which offer interest rate more than the 4.5 percent like 6 percent, 6.5 percent, 7 percent.

For instance, let us say you park Rs 1 lakh in an account that offers you 7 percent. You will earn a tax-free return of Rs 7,000 for a year. And if you invest that same amount in an FD that offer 8 percent, your post-tax return will be 5.5 percent (for those falling in the 30 percent tax bracket). “In fact, even if you invest that Rs 1 lakh in an FD that offer 9 percent per annum, and you are in the highest tax bracket, you will still only get a post-tax return of 6.21 percent, which is lesser than the savings account which offer 6.5 percent or 7 percent,” says Rego.

Note: Would a person be required to file a return if his savings bank interest is actually Rs. 20,000 but reduces to the required Rs. 10,000 on account of the deduction then...?
What happens in a case where the salary income is Rs. 5 lakh and savings interest is Rs. 10,000, making the total income Rs. 5.10 lakh and thus ineligible for the exemption from filing a return? Notably, in this case, on account of the new deduction on interest, the total income would reduce to Rs. 5 lakh. Then, would such a person be exempted from filing his/her tax return?

Section 80TTA as introduced in Finance Bill 2012
(1) Where the gross total income of an assessee, being an individual or a Hindu undivided family, includes any income by way of interest on deposits (not being time deposits) in a savings account with—
    (a) a banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act);
      (b) a 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
      (c) a Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee a deduction as specified hereunder, namely:—
           (i) in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and
           (ii) in any other case, ten thousand rupees.
(2) 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.