Deduction on Interest Income Section 80TTA/ 80TTB

As per the existing provisions of the section 80TTA there is a deduction up to Rs. 10,000 allowed to an assessee in respect to Interest Income from savings account (please note deductions is allowed only for interest on savings account and not for Fixed Deposits or Recurring Deposits).

Under the existing provisions of section 80TTA, no distinction has been made for senior citizens i.e. only a deduction of Rs. 10,000 is allowed.

Now, as per the Budget 2018, a new section 80TTB has been inserted in the Income tax act to allow a deduction of Rs. 50,000 in relation to interest income from deposits held by senior citizens. This will be effective from 01st April 2018i.e AY 2019-20 and FY 2018-19.

Here, it is pertinent to note that where deduction u/s 80TTB is allowed no deduction u/s 80TTA shall be available. In other words, both the deductions are mutually exclusive where deduction u/s 80TTB is taken deduction u/s 80TTA will not be allowed.

Consequent to the amendment above, section 194A has also been amended to increase the threshold limit for deduction of tax at source on interest income of senior citizen from Rs. 10,000 to Rs. 50,000. This amendment in the section 194A shall be applicable from 01st April 2018.

Key Difference between section 80TTA and 80TTB

Extract of Section 80TTB from the Income Tax Act:

80TTB. (1) Where the gross total income of an assessee, being a senior citizen, includes any income by way of interest on deposits with—

(a) a 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);

(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 (6 of 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—

(i) in a case where the amount of such income does not exceed in the aggregate fifty thousand rupees, the whole of such amount; and

(ii) in any other case, fifty thousand rupees.

(2) Where the income referred to in sub-section (1) is derived from any deposit 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, “senior citizen” means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.

Important Exception to Section 80TTB:

In case where the specified deposits are held by or on behalf of a partnership firm/ BOI/ AOP, sec 80TTB deduction shall not be available in the hands of such partner or member of such AOP/ BOI while computing their total income.

Does the Interest earned on NRO account by a Non Resident Individual eligible to avail deduction u/s 80TTA?

In my opinion, the answer is “Yes”. As the term used in the section is “Interest Income earned by an Individual/ HUF. That clearly means, even NRIs will be allowed to claim the deduction u/s 80TTA on the interest income earned from savings account.