Deduction in respect of interest on deposits in savings accounts [Section 80TTA] :
(i) Section 80TTA provides that in case the gross total income of an assessee, being an individual or a Hindu Undivided Family, includes any income by way of an interest on deposits in a saving account (not being time deposits, which are deposits repayable on expiry of fixed periods), deduction up to ` 10,000 in aggregate shall be allowed while computing the total income of such assessee. Such deduction shall be allowed in case the saving account is maintained with:
(1) 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);
(2) a co-operative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a co-operative land development bank); or
(3) a post office.
(ii) However, if the aforesaid income is derived from any deposit in a savings account held by, or on behalf of, a firm, an AOP/BOI, no deduction shall be allowed in respect of such income in computing the total income of any partner of the firm or any member of the AOP or any individual of the BOI.
(iii) In effect, the deduction under this section shall be allowed only in respect of the income derived in form of the interest on the saving bank deposit (other than time deposits) made by the individual or Hindu Undivided Family directly.
Illustration
Mr. Gurnam, aged 42 years, earned professional income (computed) of Rs 5,50,000 during the year ended 31.03.2016. He has earned interest of Rs 14,500 on the saving bank account with State Bank of India during the year. Compute the total income of Mr. Gurnam for the assessment year 2016-17 from the following particulars:
(i) Life insurance premium paid to Birla Sunlife Insurance in cash amounting to Rs 25,000 for insurance of life of his dependent parents. The insurance policy was taken on 15.07.2012 and the sum assured on life of his dependent parents is Rs 1,25,000.
(ii) Life insurance premium of Rs 25,000 paid for the insurance of life of his major son who is not dependent on him. The sum assured on life of his son is Rs 1,75,000 and the life insurance policy was taken on 18.04.2011.
(iii) Life insurance premium paid by cheque of Rs 22,500 for insurance of his life. The insurance policy was taken on 08.09.2012 and the sum assured is Rs 2,00,000.
(iv) Premium of Rs 22,000 paid by cheque for health insurance of self and his wife.
(v) Rs 1,500 paid in cash for his health check-up and Rs 4,500 paid in cheque for health checkup for his parents, who are senior citizens.
(vi) Paid interest of Rs 6,500 on loan taken from bank for MBA course pursued by his daughter.
(vii) A sum of Rs 15,000 donated in cash to an institution approved for purpose of section 80G for promoting family planning.
Solution
Computation of total income of Mr. Gurnam for the Assessment Year 2016-17
| Particulars | Rs | Rs | Rs | |
| Professional Income (computed) | 5,50,000 | |||
| Interest on saving bank deposit | 14,500 | |||
| Gross Total Income | 5,64,500 | |||
| Less: Deduction under Chapter VIA
Under section 80C (See Note 1) |
||||
| Life insurance premium paid for life insurance of: | ||||
| – major son | 25,000 | |||
| – self Rs 22,500 restricted to 10% of Rs 2,00,000 | 20,000 | 45,000 | ||
| Under section 80D (See Note 3) | ||||
| Premium paid for health insurance of self and wife by cheque | 22,000 | |||
| Payment made for health check-up: | ||||
| – Self | Rs 1,500 | |||
| – His Parents | Rs 1,500 | |||
| Rs 6,000 restricted to | 5,000 | 27,000 | ||
| Under section 80E | ||||
| For payment of interest on loan taken from bank for MBA course of his daughter | 6,500 | |||
| Under section 80TTA (See Note 5) | ||||
| Interest on savings bank account Rs 14,500 restricted to | 10,000 | 88,500 | ||
| Total Income | 4,76,000 | |||
Notes:
(1) As per section 80C, no deduction is allowed in respect of premium paid for life insurance of parents whether they are dependent or not. Therefore, no deduction is allowable in respect of Rs 15,000 paid as premium for life insurance of dependent parents of Mr. Gurnam.
In respect of insurance policy issued after 01.04.2012, deduction shall be allowed for life insurance premium paid only to the extent of 10% of sum assured. In case the insurance policy is issued before 01.04.2012, deduction of premium paid on life insurance policy shall be allowed up to 20% of sum assured.
Therefore, in the present case, deduction of Rs 25,000 is allowable in respect of life insurance of Mr. Gurnam‘s son since the insurance policy was issued before 01.04.2012 and the premium amount is less than 20% of Rs 1,75,000. However, in respect of premium paid for life insurance policy of Mr. Gurnam himself, deduction is allowable only up to 10% of %Rs 2,00,000 since, the policy was issued after 01.04.2012 and the premium amount exceeds 10% of sum assured.
(2) As per section 80D, in case the premium is paid in respect of health of a person specified therein and for health check-up of such person, deduction shall be allowed up to Rs 25,000. Further, deduction up to Rs 5,000 in aggregate shall be allowed in respect of health check-up of self, spouse, children and parents. In order to claim deduction under section 80D, the payment for health-check up can be made in any mode including cash. However, the payment for health insurance premium has to be paid in any mode other than cash.
Therefore, in the present case, deduction of Rs 22,000 is allowed in respect of premium paid for health insurance of self and wife. Also, the aggregate value of premium paid for health insurance and the payment for health check-up is Rs 23,500 (Rs 22,000 + Rs 1,500), which is less than Rs 25,000. Further, deduction up to a maximum of Rs 5,000 is allowable in respect of health check-up of self and his parents. This implies that Rs 3,500 is allowable for health check-up of parents which falls within the additional limit of Rs 30,000 for mediclaim premium and expenditure on preventive health check-up of parents who are senior citizens.
(3) No deduction shall be allowed under section 80G in case the donation is made in cash of a sum exceeding Rs 10,000. Therefore, no deduction is allowed under section 80G in respect of donation made to institution approved therein.
(4) As per section 80TTA, deduction shall be allowed from the gross total income of an individual or Hindu Undivided Family in respect of income by way of interest on deposit in the savings account included in the assessee‘s gross total income, subject to a maximum of Rs 10,000. Therefore, a deduction of ` 10,000 is allowable from the gross total income of Mr. Gurnam, though the interest from savings bank account is Rs 14,500.