Budget 2024 should hike savings account interest deduction to Rs 50,000 from Rs 10,000
The upcoming interim Union Budget on February 1, 2024, is anticipated to be a vote-on-account preceding the 2024 general elections. While major policy announcements might be withheld, there could be several measures aimed at providing interim relief to taxpayers.
Possible measures could include adjustments to tax slabs or deductions, easing compliance burdens, and addressing sector-specific concerns. The focus might be on sustaining economic stability and addressing immediate challenges rather than introducing comprehensive policy changes. As the government aims to maintain fiscal prudence, any announcements are likely to be in line with the need for a responsible and balanced fiscal approach during this interim period.
It’s important to note that the specific details of the budget will only be known once it is presented, and any predictions should be taken with consideration of the dynamic nature of economic and political landscapes.
80TTA of the Income-tax Act, 1961
One of the most common financial investments for individuals is keeping money in a savings bank account or a post office savings account. However, it’s important to note that the interest earned on the money in these accounts is taxable, with a deduction of up to Rs 10,000 available in a financial year. This provision is governed by Section 80TTA of the Income-tax Act, 1961.
According to Section 80TTA, if an individual (aged less than 60 years) or a Hindu Undivided Family (HUF) earns interest income from a savings account held with banks, co-operative societies engaged in banking, or the post office, they can claim a deduction of up to Rs 10,000 from their gross total income. This deduction is applicable for the interest earned on savings accounts with eligible financial institutions. Section 80TTA and Section 80TTB (as applicable) deductions are not available if an individual opts for the new tax regime during the financial year
Taxpayers are not eligible for this deduction FD, RD
“It’s essential to understand that taxpayers are not eligible for this deduction on any interest earned from fixed deposits (FDs), recurring deposits (RDs), post office time deposits, etc. However, senior citizens aged 60 years and above have a separate deduction of up to Rs 50,000 under Section 80TTB. This deduction applies to interest income from savings accounts, fixed deposits, and other deposits in specified financial institutions.”
Important to highlight that both Section 80TTA and Section 80TTB
Certainly! It’s important to highlight that both Section 80TTA and Section 80TTB deductions are not applicable if an individual chooses the new tax regime during the financial year.Currently, savings bank accounts typically offer interest rates of 3-4% per annum. In contrast, fixed deposits tend to provide relatively higher interest payouts at around 7% per annum, and recurring deposits at approximately 6.5% per annum. While some banks advertise higher interest rates, they often apply to bank balances exceeding specified levels. Recognizing the low-interest rates in most individuals’ savings accounts, many banks allow a switch from savings to fixed deposits, providing liquidity if needed
There’s no need to treat interest on savings, fixed deposit, or recurring deposit accounts differently anymore. Banks now allow easy transfer of money between savings and fixed deposit accounts, and vice versa. Therefore, the government could consider extending the benefits of Section 80TTA to fixed and recurring deposit accounts, just like it does for senior citizens.
80TTA was introduced in the 2012 Budget
Moreover, the deduction under Section 80TTA was introduced in the 2012 Budget to encourage small savings and offer relief to taxpayers. However, the amount has stayed the same since its inception. It is suggested that the government should contemplate increasing the deduction from the current Rs 10,000 to Rs 50,000, as a revision in the limit in this regard is long overdue.
Investing in savings accounts and fixed deposits may not be considered lucrative compared to equity investments due to low-interest rates and limited tax benefits. Equity investments, while carrying higher risk, offer the potential for higher returns. To encourage investment in the banking sector, enhancing the deduction limit and expanding the scope of section 80TTA could be beneficial. The simplicity and ease of operation of banking investments may attract more individuals, especially when compared to the complexity of various other investment options in the market.
