Many people who are afraid of taking risks save their money in banks and post offices. With effect from the 2012-13 financial year, the government added Section 80TTA to the Income Tax Act, which allows for a deduction of up to Rs 10,000 on interest received on deposit accounts. Most individuals are aware of this provision in the Act, but few are aware that they can claim the interest earned on a post office savings account as income tax exempt while still claiming the tax benefit under section 80TTA for savings account interest.
That instance, if an individual receives tax relief under section 80TTA for Rs 10,000 on savings account interest, he can claim an additional benefit of up to Rs 3,500 on interest received in a Post office savings account, or up to Rs 7,000 if the account is joint. Section 10(15)(i) of the Income Tax Act allows interest generated from a post office savings account to be declared as tax-free. This was announced in a government announcement dated June 3, 2011.
According to tax experts, an individual can deduct interest income from a post office savings account up to Rs 10,000 under section 80TTA of the Income Tax Act, or up to Rs 50,000 if the individual is a senior citizen, under section 80TTB. In addition to the deduction under section 80TTA or 80TTB, he can claim the exemption benefit (under section 10(15)(i) on interest income from a post office savings account up to Rs 3,500 for an individual account and Rs 7,000 for a joint account.
For instance, if a guy gets Rs 9,900 in interest from a bank savings account and Rs 3,600 from a post office savings account, his total interest income is Rs 13,500. So he can claim an exemption of up to Rs 3,500 on interest income from a post office savings account under section 10(15)(i), increasing his total interest income to Rs 10,000, for which he can claim an exemption under section 80TTA and avoid paying any tax.
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