Individual tax-payers, particularly senior citizens, are hoping that Finance Minister Nirmala Sitharaman will provide relief on tax on interest income from savings and fixed deposits when she presents the Budget for the financial year 2025-26 on February 1.
These deductions are available under the old, with-exemptions tax regime. Tax and financial planning experts Moneycontrol spoke to said there is strong case for hiking the deduction under section 80TTA (savings account interest) from Rs 10,000 to Rs 20,000. Likewise, deduction of up to Rs 50,000 (fixed deposit interest) under section 80TTB extended to senior citizens should be raised to Rs 1 lakh. They have called for these deductions in the new, minimal exemptions, regime as well.
Deductions on bank deposit interest
Section 80TTA of the Income Tax Act, 1961, allows a deduction of up to Rs 10,000 on interest income earned from savings accounts held with banks, co-operative banks or post offices. This deduction is available to individuals below 60 years and Hindu Undivided Families (HUFs) but does not apply to interest earned from fixed deposits and recurring deposits.
“The threshold limit of deduction of interest income on savings bank account of up to Rs 10,000, available to individuals (other than senior citizens) and HUFs under section 80TTA, had remained static since its introduction in FY 2012-13,” says Mayank Mohanka, founder-director at TaxAaram India.
Section 80TTB offers a deduction of up to Rs 50,000 on interest income earned from bank deposits, including savings and fixed deposits, as well as post office deposits. This deduction provides tax relief to senior citizens who rely on interest income from secure investments. However, interest earned from bonds and debentures is not eligible for this deduction.
Also read: Budget 2025: Why tax relief for debt funds tops the wish list of mutual fund industry
The Budget wish list
Tax experts have made a slew of suggestions ahead of Budget 2025. “To factor in the rising inflation, it is desirable that the threshold limit of deduction of Rs 10,000 be increased to at least 20,000 under section 80TTA,” says Mohanka.
Some experts are optimistic that Section 80TTA could be expanded to cover interest earned not only from savings accounts but also from fixed deposits, benefiting younger taxpayers.
“The current limit of Rs 50,000 under 80TTB for senior citizens also needs significant upward revision to at least Rs 1 lakh, considering the rising healthcare costs and increased life expectancy of senior citizens in India,” says Col Sanjeev Govila (retd), CEO of Hum Fauji Initiatives, a financial planning firm.
“The increased threshold limit for deductions in these sections will help offset the expected decline in interest rates because of the anticipated Reserve Bank of India (RBI) repo rate cuts this year," says Mohanka.
To encourage more people to switch to the new regime, Mohanka said deductions under sections 80TTA and 80TTB should be allowed. These deductions are only available under the old tax regime.
Rationale for the deduction limit hikes
Given the erosion of purchasing power due to inflation, a hike in deductions in both these sections would bring much-needed relief to taxpayers, including individuals under 60 years and senior citizens.
Retirees heavily rely on fixed-income instruments for their livelihood. “Increasing the deduction limit recognises the limited investment options available to them, as they often can't take on riskier, higher-yielding investments,” says Govila.
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