New amendment for Interest on Saving A/c. and Section 80TTA of Income Tax Act, 1961

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 maintained with a bank / society / post office. The deduction admissible shall be interest received or Rs. 10,000/- whichever is lower.

With above basic coverage on the provision proposed to be incorporated, the replies to your queries 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.

Posted in: Bank Interest,EPF Interest,GPF Interest,PF Interest,PPF Interest,Tax on Interest Income