This deduction is granted under section 80TTA of the Income Tax Act, 1961. This deduction is allowed only to individual and HUF assesses and not firms/companies. Maximum Rs 10,000 per year deduction is allowed for interest earned from all savings accounts held in banks, post offices or co-operative banks. Interest earned beyond Rs 10,000 from any of these sources shall be taxable. For example, Mr. Rishabh earns Rs. 8,500 from interest on the savings account. Thus, no tax shall be payable on these earnings. On the other hand, Mr. Mukul earns Rs 17,000 from his savings accounts. He would be required to pay tax at the rates applicable as per his tax slab of Rs 7,000 (Rs 17,000 – Rs 10,000).
This section grants a deduction up to Rs 50,000 per annum to interest on savings accounts and on fixed deposits to senior citizens (those who are above the age of 60). The section also grants the same deduction to interest on fixed deposits. This is a key distinction that marks out the deduction given to senior citizens from the deduction given to all individuals. The former extends to interest from fixed deposits and savings accounts while the latter only extends to interest on savings accounts.