Most of us are aware of Section 80TTA and Section 80TTB introduced by the government from the financial year 2012-13 that allows the taxpayer to avail of the deduction for interest earned on deposit accounts from the gross total income.
Under Section 80TTA, the taxpayer can claim a deduction of up to Rs 10,000 for interest earned on a savings bank account held with a commercial or co-operative bank or a post office.
However, not many know that they can claim exemption from income tax up to a specific limit for the interest received from a savings account in the post office. Under Section 10(15)(i) of the Income Tax Act, interest received from the post office savings account is exempt from tax for up to Rs 3,500 for individual accounts and Rs 7,000 in the case of joint accounts per financial year. Such exemption is also available under the new tax regime. It was notified under a government notification dated June 3, 2011.
The said exemption is available in addition to the tax benefit of Rs 10,000 under Section 80TTA and Rs 50,000 under Section 80TTB (for senior citizens) of the Income Tax Act. This means that you claim tax relief under section 80TTA for Rs 10,000 on savings account interest, and you can further claim the benefit of up to Rs 3,500 on interest earned from savings account in the post office and up to Rs. 7,000 if it is a joint account.
How to claim the tax benefit?
The manner of claiming the tax benefit under Section 10(15(i) and Section 80TTA/80TTB is different.
To claim an exemption under Section 10(15(i) for interest earned on a post office savings account, one can avail of the exemption before arriving at the final figure of gross taxable income. A taxpayer would be required to deduct the interest from the post office savings account(exempt amount) from income under the head ‘income from other sources’ and then calculate the gross taxable income.
However, for claiming tax benefit under Section 80TTA/80TTB, the taxpayer should first add total interest income under ‘Income from Other Sources’ and calculate the gross total income followed by taking deduction under section 80TTA/80TTB.
If you have earned interest of Rs 4,500 as interest from post office saving account and Rs. 9,000 interest from deposits in other banks, then total interset income is Rs 13,500. So you can claim exemption up to Rs 3,500 under Section 10(15)(i) on interest income earned from saving account with post office, and for balance Rs 10,000, again you can claim an exemption under 80TTA, and you will not have to pay any tax on interest income of Rs 13,500.
Also, if you have opened joint savings account with your wife in the post office, both of you can claim a tax exemption of ₹3,500 separately.
Tax benefit available in the new tax regime
The exemption under Section 10(15)(i) is also available under both the old and new tax regimes. Hence, one can claim an exemption for interest received from the post office savings account up to Rs 3,500 for individual accounts and Rs 7,000 in the case of joint accounts per financial year while calculating tax under the new tax regime.
However, deduction of Section 80TTA and Section 80TTB is not allowed in the new tax regime.
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