Union Budget 2024: Will Nirmala Sitharaman make savings account interest up to Rs 25000 tax-free?

The forthcoming Union Budget for FY2024-25 is just around the corner, and as usual, there is a plethora of expectations from the government. Various sectors and individual taxpayers alike are eagerly awaiting Finance Minister Nirmala Sitharaman’s announcements with optimism. One of these expectations is the possible increase in the deduction limit under Section 80TTA.

It may be noted that Section 80TTA provides a deduction of up to Rs 10,000 on interest earned from savings bank deposits. This deduction is available to individuals opting for the old tax regime. However, individuals who choose the new tax regime cannot claim this deduction.

According to CAclubindia, sources familiar with the matter have disclosed that the government is contemplating a plan to raise the tax-deductible amount on interest earned from savings accounts to Rs 25,000. This suggestion was put forward by banks in a recent discussion with important finance ministry officials.

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The Budget 2020 had implemented a new, simplified income tax system that does not include exemptions, giving taxpayers the option to select based on their financial circumstances. Under the older tax regime, interest earned up to Rs 10,000 annually from savings accounts is exempt from tax under Section 80TTA of the Income Tax Act. For senior citizens, this limit is Rs 50,000, including interest income from fixed deposits under Section 80TTB.

These privileges have been eliminated under the new tax system. However, under Section 10(15)(i), taxpayers can still claim exemptions on interest from Post Office savings accounts up to Rs 3,500 for individual accounts and Rs 7,000 for joint accounts. Banks are pushing for these benefits to be available under both tax systems.

A source mentioned that there is consideration for both increasing the old limit and permitting interest income from savings accounts in scheduled commercial banks (SCBs) under current regulations in the new system. Banks are advocating for encouraging deposits due to worries about the expanding credit-deposit ratio, as per CAclubindia.

Some tax experts, however, say that the government is unlikely to increase the deduction limit under Section 80TTA.

“The new tax regime is a simplified system that offers concessional tax rates if the individual foregoes certain deductions. The government has been promoting this regime due to its simplicity for individual taxpayers and fewer opportunities for tax avoidance. It is unlikely that the government will increase the deduction under Section 80TTA, as this would undermine the objective of transitioning taxpayers from the old to the new tax regime. At most, the finance minister can consider allowing this deduction under the new tax regime,” informs CA Naveen Wadhwa, Vice-President, Taxmann.

Thus, whether the Finance Minister will increase the deduction limit under Section 80TTA of the I-T Act or not remains to be seen.