Section 80TTB-Rs.50,000 deduction for Senior Citizens
The Union Budget 2018 has introduced section 80TTB of Income Tax to provide for great relief in the form of a deduction from income for the Senior Citizens of India. Since the time has come to file an income tax return for the F.Y 2018-19 and A.Y 2019-20, I have decided to write a blog post on Section 80TTB. In this post, we will learn What is Section 80ttb? Is interest on FD taxable for senior citizen under section 80ttb? How much interest is tax-free for senior citizen under section 80ttb?
⇒What is Section 80ttb?
As per section 80TTB of Income Tax Act, Senior Citizens can claim tax exemption up to Rs. 50000/- in a financial year on interest on deposits held with Banks, Post Offices and Co-operative Banks engaged in the business of banking. It is important to keep in mind that under section 80TTB all kinds of interests i.e. interest earned on savings bank account, interest received from Fixed Deposits, Recurring Deposits, Post Office Monthly Income Schemes(POMIS), Senior Citizen Savings Schemes(SCSS), Post Office Time Deposits are exempted from tax up to Rs.50000/- in a fiscal year.
Therefore, interest received from other sources such as the company Deposits, interest received from NBFCs FDs are not entitled to this exemption under this new Section 80TTB.
Section 80TTB is effective from the financial year 2018-19 and eligible for first time deduction from gross total income in the assessment year 2019-20. Section 80TTB clearly defines senior citizens as resident Indians who have attained the age of 60 years during the financial year. Therefore, non-resident senior citizens can not avail the benefit under this section.
In line with the provisions of Section 80TTB, the union budget of 2019 has increased the provisions of tax deducted at source or TDS on interest income as mentioned above from the existing ceiling of Rs.10000/- to Rs.50000/- for the senior citizens only. This means as per section 194A of the I.T Act, banks are not now liable for tax deductions on interest earned by the senior citizens up to Rs.50000/- only. Interest income earned over Rs.50000/- will be subjected to TDS.
⇒Is interest on FD taxable for senior citizen under section 80ttb?
Section 80TTB of Income Tax Act allows a tax exemption of up to Rs.50000/- per year for senior citizens for interest earned on Fixed Deposits. That means any interest earned over and above Rs.50000/- will be taxable in the hands of the senior citizens. So, if a senior citizen has earned Rs.65000/- as interest from FD in a financial year, in that case, interest from FD will be tax free up to Rs.50000/- and balance Rs.15,000/- will be added to the total income of the senior citizen and tax will have to be paid accordingly. So, this section helps senior citizens to save taxes substantially.
⇒How much interest is tax-free for senior citizen under section 80ttb?
Resident senior citizens are entitled to get a tax exemption up to Rs. 50000/- in a financial year for interest earned from Banks, Post Offices and Co-operative societies engaged in the banking business. So, interest income up to Rs. 50000/- is tax free for senior citizens under this section in a financial year.
Any extra amount earned over and above Rs. 50000/- is not tax-free and will be added with the total income of the senior citizens and tax has to be paid accordingly.
⇒Can senior citizen claim both deductions under section 80TTA and 80TTB?
There is a basic difference between the two sections. Section 80TTA allows exemption of up to Rs.10,000/- for interest income earned one and only from the savings bank account only. Any other interest income is not exempted under section 80TTA. Whereas section 80TTB allows deduction of Rs.50000/- in a year for interest earned on any kind deposits from banks, post offices and even from co-operative societies engaged in the business of banking except interests earned from the company deposits.
So, a senior citizen can not avail the benefits of both the deductions. If senior citizen avails the benefit u/s 80TTB he can not avail the benefits of section 80TTA. However, ideally, a senior citizen should avail the benefits of section 80TTB which is more beneficial to him financially.
Taxpayers below the age of 60 years can not avail the benefits u/s 80TTB. However, they can avail the exemption u/s 80TTA i.e. interest income from savings bank accounts up to Rs.10000/- per year.
⇒Applicability of section 80TTB for A.Y 2019-20/ 80TTB deduction for A.Y 2019-20
This section is effective from 1st April 2018. This means the senior citizens can avail the benefits of this tax exemption from the A.Y 2019-20 itself. Interest income earned in F.Y 2018-19 is eligible for a deduction as interest income from deposits up to Rs.50,000/- w.e.f F.Y 2019-20.
⇒Now, let’s take an example and see income tax calculation for senior citizens as per Section 80TTB of Income Tax Act:
A senior citizen has the following income received during the F.Y 2018-19.
- Interest from the savings bank account Rs. 8000/-
- Interest income from Fixed Deposits, Recurring Deposits, and Senior citizen savings schemes is Rs. 250000/-
- Income from any other sources Rs. 185000/-
Income Tax computation for F.Y 2018-19 & A.Y 2019-20
|Particulars of income earned in F.Y 2018-19||Tax Payers below 60 Years||Senior Citizens above 60 Years|
|Income from savings bank account||Rs.8000||Rs.8000|
|Income from Fixed Deposits, Recurring Deposits, and Senior citizen savings schemes||Rs.250000||Rs.250000|
|Gross Total Income||Rs.443000||Rs.443000|
|Deduction under Section 80TTA||Rs.8000||Not Eligible|
|Deduction under Section 80TTB||Not Eligible||Rs.50000|
|Net Taxable Income||Rs.435000||Rs.393000|
|Tax on Income( Rebate u/s 87A Rs.12,500/-is not considered for calculation purpose)||Rs.9250||Rs.4650|
|Total Tax payable including Cess||Rs.9620||Rs.4836|
|In current scenario Rebate u/S 87A is applicable from F.Y 2019-20 & A.Y 2020-21.||Nil||Nil|
You can download the calculation in printable format below
This section is definitely going to help the senior most persons in our society to a great extent especially to those senior citizens who mainly earn their bread and butter from interest income after their retirement. Therefore, senior most citizens earning an amount of Rs.350000/- per year is effectively tax-free with the introduction of this aiding section.
We should not forget that there is another section that was being introduced in the Finance Budget 2019 i.e. Rebate U/S 87A which provides tax exemption up to Rs.12500/- if one’s net taxable income is less than Rs.5 Lakh. That means effectively the tax liability is zero up to an income of Rs. 5 Lakh earned in a financial year.
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