Income Tax Deduction on Interest on Saving Bank Account, Section 80TTA of Income Tax Act

Income Tax Deduction in respect of interest on deposits in savings account under Section 80TTA of Income Tax Act, 1961. For giving additional income tax deduction on Interest on Saving Bank Account  new section 80TTA under Income Tax Act,1961 was  introduced through Finance Act, 2012. This additional deduction u/s 80TTA is applicable only to individual and HUF on interest income from bank saving account .i.e this deduction is not applicable on interest received on time deposit/term deposit.

Eligible Assessee for section 80TTA: only Individual and HUF are elegible under this section, so a firm, an association of persons or a body of individuals will not get the benefit of this section.

Deduction Limit/ Maximum Deduction under Section 80TTA:  Rs 10,000/- or actual interest receipt from saving bank account , which ever is lower. Example1. if person receive interest of Rs 15000/- from saving bank account then he has to pay tax on Rs 5000/- and Rs 10,000/- he can claim as deduction u/s 80TTA. Example2. if person receive interest of Rs 9000/- from saving bank account then he don’t have to pay tax on Rs 9000/- and Rs 9,000/-  can be claimed as deduction u/s 80TTA.

Meaning of Term Deposit: The deposits under the Scheme mean “term deposits” received by the bank for a fixed period and withdrawable only after the expiry of the said fixed period and includes Reinvestment Deposits and Cash Certificates or other deposits of similar nature.

Reference: Section 80TTA  

Deduction in respect of interest on deposits in savings account.

80TTA. (1) Where the gross total income of an assessee, being an individual or a Hindu undivided family, includes any income by way of interest on deposits (not being time deposits) in a savings account with—

 (a) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);

 (b) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

 (c) a Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898),

there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee a deduction as specified hereunder, namely:—

  (i) in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and

 (ii) in any other case, ten thousand rupees.

(2) Where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.

Explanation.—For the purposes of this section, “time deposits” means the deposits repayable on expiry of fixed periods.

For definition of “Post Office” as defined in section 2(k) of the Indian Post Office Act, 1898

TDS Rate on Winnings from horse race under section 194BB of Income Tax Act

Rate of TDS on Payments of Winnings from horse race under section 194BB of Income Tax Act, 1961 is 30% plus surcharges, education cess and secondary higher education cess. Tax is to be deducted at the time of making payment. Thus if the prize is paid in installments, the deduction of tax shall be made at the time of each installment. (However keep in mind that the exemption limit of Rs.5000/- is per winning and not per payment).

Reference: Section 194BB of the Income Tax Act, 1961

Winnings from horse race

194BB. Any person, being a bookmaker or a person to whom a licence has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race in an amount exceeding five thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force.

What do you mean by Casual Income under Income from Other Sources or Taxation on Income from Gambling, Lotteries and other Games or Game Shows on Television

Section 2(24) (ix) of the act includes following receipts within the scope of the term ‘Income’ –

  1. Winning from lotteries,
  2. Winning from crossword puzzles,
  3. Winning from races (including horse races),
  4. Winning from card games and other games of any sort
  5. Winning from gambling or betting of any form or nature

The term ‘lottery’ is defined to include winning from prizes awarded to any person by draw of lots or by chance or, in any other manner whatsoever, under any scheme or arrangement by whatever name called. Further the expression “card games and other game of any sort” is defined to include any game show, any entertainment programme on television or electronic mode, in which people complete to win prizes or any other similar game.

Thus, the above incomes are taxable under the provision of act. The word “casual Income has not been defined by the Income Act but in general terms these types of income are called as Casual Income and currently such income is taxed at 30% rate plus education cess and surcharge (if any).

Treatment or Taxation:

  1. Casual income is always taxable under section 56 of the Income Tax Act, under head of income from other sources
  2. Actual expenses incurred for earning casual income are not allowed because of restriction imposed in section 58(4) “In the case of an assessee having income chargeable under the head “Income from other sources”, no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoever”.:
  3. No deduction is allowed under chapter VI-A. (However, the casual income is a part of GTI for the purpose of computing deduction under chapter VI-A), which means person will not get any deduction under section 80A to 80VV which includes deduction under section 80C and related provisions.
  4. Basic exemption of Rs. 1,60,000 or 1,90,000 or 2,40,000 is also not allowed on income defined under section 2(24)(ix)..
  5. First rate of tax 115BB (30% + Surcharge + Education cess + secondary and higher education cess) for all assesses.
  6. Losses cannot be set off against casual income. (However, some experts are of the opinion that casual losses can be set off against, casual income. For, example, loss from betting can be set off against income from salary but above issue is debatable in nature and assessee officer can reject your claim)

Grossing up of casual income:

If TDS amount is given in question

Net amount of casual income + TDS amount

If TDS rate is given in question

Net amount of casual income

100 – TDS rate

In which year it is chargeable to tax-

Where an assessee does not maintain any books of accounts, lottery prize won by him would accrue in the year in which it is received by the assessee and not in year in which the prize is declared – CIT v. M Ramachadran [2007] (Mad)

 

Reference: Section 2(24) of the Income Tax Act, 1961

2(24) “income” includes

(i)  Profits and gains;

(ii)  Dividend;

(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes [or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) [or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via)] of clause (23C) of section 10 [or by an electoral trust]].

Explanation.—For the purposes of this sub-clause, “trust” includes any other legal obligation;

(iii)  the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17 ;

(iiia)  any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit ;

(iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living ;]

(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid ;

(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the “beneficiary”) and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary ;]

(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59 ;

(va) any sum chargeable to income-tax under clause (iiia) of section 28 ;]

(vb) any sum chargeable to income-tax under clause (iiib) of section 28 ;]

(vc) any sum chargeable to income-tax under clause (iiic) of section 28 ;]

(vd)] the value of any benefit or perquisite taxable under clause (iv) of section 28 ;

(ve) any sum chargeable to income-tax under clause (v) of section 28 ;]

(vi)  any capital gains chargeable under section 45 ;

(vii)  the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule ;

(viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;]

(viii) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original sub-clause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;]


(ix) Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.]

[Explanation.—For the purposes of this sub-clause,—

(i)  “lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;

(ii) “card game and other game of any sort” includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game ;]

(x)  any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ;]

(xi)  any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

Explanation.—For the purposes of this clause*, the expression “Keyman insurance policy” shall have the meaning assigned to it in the Explanation to clause (10D) of section 10 ;]

(xii) any sum referred to in [clause (va)] of section 28;]

(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;]

(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;]

(xv) any sum of money or value of property referred to in clause (vii) [or clause (viia)] of sub-section (2) of section 56;]

The following sub-clause (xvi) shall be inserted after sub-clause (xv) of clause (24) of section 2 by the Finance Act, 2012, w.e.f. 1-4-2013:

(xvi)  any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of sub-section (2) of section 56;

Section 56(2) Gift Received In Cash and Kind

  1. Any sum of money received:

    Without consideration from a person the aggregate value of which exceeds Rs.50000/-, the whole of the aggregate value received is taxable

  1. Any immovable property received:

    Without consideration, but stamp value of such property which exceeds Rs.50000/-, such stamp value is chargeable to tax

    With consideration, which is less than the stamp duty value of property by an amount exceeding Rs.50000/-, Nothing is taxable

    1. Movable or any other property:

      Without consideration, but Fair market value of such property which exceeds Rs.50000/-, Fair market value of such property is chargeable to tax

      With consideration, which is less than the Fair market value of property by an amount exceeding Rs.50000/-

      Fair market value

      Less: Consideration

>50000 such amount chargeable to tax

When Gift Received is Exempted from Income Tax

Gift received from the following person/circumstances more than Rs.50000 is exempted from tax:

  • Money and property received from a relative.
  • Money and property received on the occasion of the marriage of the individual
  • Money and property received by way of will/ inheritance
  • Money and property received in contemplation of the death of the payer
  • Money and property received from a local authority
  • Money and property received from any fund, foundation, university, other educational institution, hospital, medical institution, any other trust or institution referred to in section 10(23C)
  • Money received from charitable institution registered under sec.12AA

Overview and Taxability of Income from Other Sources

[Sec.56 (1)] a source of Income which does not specifically fall under any one of the other four heads of income is to be computed and brought to charge under section 56 under the head “Income from other sources”.

CHARGEABLE INCOME [SEC. 56(2)]

  1. Dividend [Sec. 56 (i)] –Under sec.2 (22), the following distributions by a company to his shareholders as dividends to extent profit of the company.
    1. Any distribution entailing the release of the company’s asset
    2. Distribution on liquidation or reduction of capital in the company.
    3. Any payment made in the form of advance or loan.
  2. Winning from lotteries, crossword puzzles, horse races and card games – Meaning of “lottery” , lottery includes wining from prizes awarded to any person by draw of lots under any scheme and card games includes any game show which people complete to win prize.
  3. Interest on securities – Interest on securities is taxable under this head. If such income is mentioned in books of accounts on “cash basis”, then the Interest is taxable in receipt basis or if not mentioned then it is “accrual” basis.

    Following interest exempted under sec. 10(15) –

    1. Interest on notified securities, bonds and certificates, etc.
    2. Interest to Individual or HUF on 7%Capital Investment Bond (Finance Act, 1982).
    3. NRI Bonds issued by the State Bank of India.
    4. Interest on securities issued by the Central Bank of Ceylon.
    5. Interest on 9% Relief Bonds, (Individual and HUF, 1987)
    6. Interest on notified debentures of public sector companies.
    7. Interest on deposits made in a notified scheme by a retired government Employee and public sector employee.
  4. Income from machinery, plant or furniture let on hire [Sec. 56(2) (ii)/ (iii)] – (Machinery, plant or furniture) assets belonging to assessee and lets on hire is taxable as “income from other sources”, the income from the letting of building is taxable under this head.
  5. Receipt without consideration [Sec. 56(2)] – some provisions are as follows-

When a sum of money/ property is received without consideration or on after October 1, 2009    

[sec. 56(2)(vii)]

When a sum of money is after march 31, 2006 but before October 1, 2009.

[sec. 56(2)(vi)]

Gift received on or after September 1, 2004 but before April 1, 2006

[sec.56(2) (v)]


List of Income Chargeable under Head Income from other sources

The following incomes are chargeable to tax under this head:

  • Dividend
  • Winning from lotteries
  • Crossword puzzles
  • Horse races
  • Card games
  • Interest on P.F/welfare fund etc. which is not taxable under the head salary & B & p
  • Rent of inseparable facilities other than H.P if it can be bifurcated
  • Family pension
  • Interest on securities which is not taxable under the head B & P
  • Sum received from keyman insurance policy
  • Interest on compensation/ enhanced compensation in case of compulsory acquisition
  • Sum of money received as gift
  • Interest on bank deposit and loan
  • Income from subletting
  • Income from royalty
  • Agriculture income outside India
  • Interest on foreign government securities
  • Casual income
  • Annuity payable under a will
  • Gift received in cash and kind


 

Deduction from Income from Other Sources under Section 57

After making the following deduction the income chargeable tax under this head:

  1. Income of family pension: Rs. 15,000 or 331/3% of such income, whichever is lower.
  2. in the nature of machinery, plant or furniture let on hire:
    1. Repairs to building [Sec. 30 (a) (ii)] and current repairs to machinery, plant or furniture and insurance premium [Sec. 31]
    2. Unabsorbed depreciation [sec. 32(2)] and depreciation on plant, building or insurance premium, machinery [sec
  3. In the case of dividend income- reasonable remuneration paid for realisation of dividend
  4. Any other expenses exclusively for purpose of earning income.
  5. In case of interest or enhanced compensation 50% of such interest.

Amount not deductible under section 58, 115A, 115AB, 115AC, 115AD, 115BBA and 115D.