Section 80TTA is proposed to be introduced to provide deduction to an individual or a Hindu undivided family in respect of interest received on deposits (not being time deposits) in a savings account held with banks, cooperative banks and post office. The deduction is restricted to Rs 10,000 or actual interest 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.

Clarification Required

The above section been introduced but FM has forgot to give effect to other elements of the law having consequent cascading effects.  For example Salaried taxpayers, whose total income from salary and interest does not exceed Rs. 5 lakh, are exempted from filing tax returns provided their savings bank interest incomes do not exceed Rs. 10,000. In other words, while the ceiling on the total income is Rs. 5 lakh, within this overall limit, there is a Rs. 10,000 sub-ceiling on the interest earned. Question which arise is are as follows:-

• 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?
• 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?

Hope Government will soon issue clarifications in respect of above.

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.

Section 80TTA as introduced in Finance Bill 2012

Deduction in respect of interest on deposits in savings account.

80TTA. (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.

Explanation.—For the purposes of this section, “time deposits” means the deposits repayable on expiry of fixed periods.’.