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One of the most common financial investments that an individual would have is money lying in a savings bank account or with post office savings account. Interest earned on money in these savings bank accounts is taxable subject to a deduction of Rs 10,000 in a financial year. According to Section 80TTA of the Income-tax Act, 1961, if an individual (aged less than 60 years) or a Hindu Undivided Family (HUF) has interest income from a savings account held with banks, co-operative societies carrying on the business of banking or post office then deduction up to Rs 10,000 could be claimed from the gross total income.
Also Read: Budget 2024 income tax relief: Medical cost doubles in 5 years, will Budget increase Section 80D limit for health insurance?
It is important to note that taxpayers cannot avail this deduction for any interest they have received from fixed deposits (FDs), recurring deposits (RDs), post office time deposits etc. For senior citizens, who are 60 years and above, there is a separate deduction of up to Rs 50,000 under Section 80TTB that applies to interest income from savings accounts, fixed deposits and other deposits from various specified financial institutions.
It is pertinent to note that both Section 80TTA and Section 80TTB (as applicable) deductions are not available if an individual opts for the new tax regime during the financial year.Currently, a savings bank account typically provides interest in the range of 3-4% per annum, while fixed deposits enjoy a relatively higher interest payouts around 7% per annum and recurring deposits around 6.5% per annum. Though some banks advertise higher interest rates, it is available on bank balances exceeding specified level. Given the low interest rates in a savings account available to most individuals, most banks enable a switch from savings to a fixed deposit while allowing liquidity, should the need arise.There is no longer a reason to differentiate treatment of interest from savings, fixed deposit or recurring deposit accounts. This is because banks provide option of moving money easily from savings bank account to FD and vice versa. The government may hence extend the benefits of Section 80TTA to fixed and recurring deposit accounts, at par with the treatment for senior citizens.Further, the deduction under section 80TTA was introduced in the Budget 2012 to incentivise small savings and provide relief to taxpayers. However, the quantum has remained constant since then. The government could consider raising the deduction from the existing Rs 10,000 to Rs 50,000 as a change in the limit in this aspect is long overdue.
Keeping money in savings accounts and investing in fixed deposits are not considered as lucrative investment options as the current interest rates coupled with tax benefits are low as compared to equity which offers higher return with higher risk. Enhancing the deduction limit along with widening the scope of the section 80TTA, would also boost investment in the banking sector and could also become popular due to its ease of operation and understanding compared to a wide variety of complex investment options available in the market.
(By Tapati Ghose, Partner, Deloitte India and Sangeetha BM, Manager, Deloitte India)
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