Most people are aware that they can claim a deduction of up to Rs 10,000 from income to reduce tax payable under section 80TTA on the interest received from bank and post office savings accounts. However, many are not aware that they can claim the interest received from a post office savings account as exempt from income tax along with claiming the tax benefit under section 80TTA separately for savings account interest. Interest from post office savings account can be claimed exempt from income tax under section 10(15)(i) of the Income Tax Act. Read on to know how.
As per a government notification, dated June 3, 2011, exemption is granted on post office savings account interest up to Rs 3,500 for single accounts and up to Rs 7,000 for joint accounts.
Abhishek Soni, CEO and founder, Tax2win.in, an ITR filing website says, “An individual can claim deduction of interest income from saving account held with post office as per section 80TTA of the Income Tax Act to the extent of Rs 10,000 or, in case the individual is a senior citizen, up to Rs 50,000 under section 80TTB. In addition to that, he / she can claim the exemption benefit (as per section 10(15)(i) on interest income from saving account with post office to the extent of Rs 3,500 in case of individual account and Rs 7,000 in case of joint account in addition to the deduction under section 80TTA or 80TTB.”
Chartered Accountant Naveen Wadhwa, DGM, Taxmann.com says, “Section 10(15)(i) of the Income-tax Act, 1961, provides exemption in respect of interest, premium on redemption or other payment on certain deposits notified by the central government in this behalf. The government through notification number SO 1296(E), dated 3-6-2011, has prescribed that interest on post office saving account is exempt to the extent of Rs 3,500 in case of an individual account and Rs 7,000 in case of a joint account. Sections 80TTA and 80TTB provide deduction in respect of the interest on deposit in post office saving bank account. If exemption is claimed under Section 10(15) in respect of such income, no deduction shall be available for the same income. Any interest income in excess of this limit (i.e., in excess of Rs 3,500 or Rs 7,000 in case of single and joint accounts, respectively) may be considered for Sections 80TTA or 80TTB deductions.”
“Specific notification was released in June 2011 to provide exemption under Section 10(15)(i) of the Income-tax Act, 1961 (Act) for interest earned on post office savings account. This exemption is restricted to Rs 3,500 for individual account and Rs 7,000 for joint account. Further, with effect from FY 2012-13, the government introduced Section 80TTA under the Act to provide deduction up to Rs 10,000 from interest earned from deposit accounts. This also includes interest earned from post office savings accounts. On a joint reading of both the sections, it appears that deduction of Rs 10,000 under Section 80TTA of the Act and exemption of Rs 3,500 under Section 10(15)(i) of the Act would be collectively available to a taxpayer. While Section 10(15)(i) of the Act provides exemption from taxability, Section 80TTA of the Act provides a deduction from taxable income. Hence, both the sections are mutually exclusive without any cross reference denying or restricting the benefit provided by either section. Similarly, senior citizens with effect from FY 2018-19, can claim the exemption on post office savings account interest under section 10(15)(i) and deduction under section 80TTB of the Income Tax Act,” says Shalini Jain, People Advisory Services, Partner, EY India.
Alok Agrawal, Partner, Deloitte India says, “The interest earned from post office savings accounts can be claimed as exempt up to Rs 3,500 (in case of individual account) or Rs 7,000 (in case of a joint account) per annum under Section 10(15)(i) (read with the Gazette notification issued by the Central Government in 2011). The balance interest amount needs to be included in Gross total income. Then the taxpayer (other than senior citizen) can claim a deduction under Section 80TTA of interest earned from specified sources (inclusive of post office savings account) up to Rs 10,000 per annum in order to arrive at his taxable income. Senior citizens can claim deduction of interest earned from specified sources (inclusive post office savings account) up to Rs 50,000 per annum. under Section 80TTB. So both the above benefits (exemption and deduction) can be claimed simultaneously in a single financial year as the 2011 notification has not been amended after the introduction of the above deductions in FY 2012-13 and the law does not place any other restrictions.”
- How does one can claim additional tax benefit?
Here’s an example of how a person can claim the exemption on the post office savings interest along with deduction under sections 80TTA or 80TTB as applicable to him/her. Wadhwa explains with an example how you (not being a senior citizen) can claim exemption under section 10(15)(i) and deduction under section 80TTA.
Suppose you have received interest of Rs 4,000 from your singly held post office savings account and Rs 9,000 from your bank savings account.
|Interest from bank savings account||9,000|
|Interest from post office savings account||4,000|
|Less: Exemption available on interest from post office savings account under section 10(15)(i)||(3,500)|
|Gross taxable income||9,500|
|Less: Deduction under section 80TTA (Available up to Rs 10,000)||9,500|
|Net taxable income||0|
Therefore, a non-senior citizen can claim Rs 7,000 interest on a jointly held post office savings account as tax exempt and additionally claim deduction from income of up to Rs 10,000 on savings account interest (bank or post office savings account interest in excess of the Rs 7,000) i.e., tax can be avoided on a total of Rs 17,000 savings account interest.
- Reporting of exempted income in your ITR
If you have claimed exemption on the interest received from the post office savings account, then remember you have to report such exemption in your income tax return (ITR) under the head ‘Exempt Income’.