Budget 2018 introduced a new section, 80TTB, under the Income Tax Act which allows senior citizens to claim tax break on specified interest income up to Rs 50,000 in a financial year. The Income Tax Act defines a senior citizen as a resident individual aged 60 years or above during the financial year.

Through section 80TTB, a senior citizen will be able to claim deduction of up to Rs 50,000 from the total interest income earned during a financial year from the gross total income earned in that year before levy of tax on it. However, as this is a new law, there are three important things that you need to know about it.

Not all interest income can be claimed as a deduction
Under section 80TTB, only interest received from deposits held with a bank, a co-operative society engaged in banking or with a post office can be claimed as deduction.

This would mean that interest earned on savings accounts and deposits (such as fixed deposits or recurring deposits) held with any of these three entities will be eligible for deduction under this section. Further, interest earned on other types of deposits with post offices such as Senior Citizen Savings Scheme accounts, post office time deposits, 5-year recurring deposits and Post Office Monthly Income Schemes will also be eligible for deduction.

Practising Chartered Accountant, Sachin Vasudeva says, "Section 80TTB specifically mentions the sources of interest income on which deduction can be claimed. Interest received from banks (from savings accounts, fixed deposits, and recurring deposits), co-operative banks and post office (savings accounts and other post office savings schemes such as NSC, Senior Citizen Savings Scheme, PO Monthly Income Scheme etc.) will be eligible for deduction. Therefore, interest received from any other sources such as interest from company FD will not be eligible for deduction."

This also implies that interest earned on bonds and debentures would not qualify for deduction under this section.

These interest incomes are normally added to the gross total income and taxed at the rates applicable to the individual.

Senior citizens cannot claim deduction under section 80TTA
Section 80TTA of the Income Tax Act allows deduction of up to Rs 10,000 of the total interest income earned from savings account held with a bank or post office in a single financial year. Earlier, this deduction was available to everyone irrespective of their age, i.e., to individuals aged below 60 years, senior citizens, and super senior citizens.

However, with effect from financial year 2018-19, senior citizens will be not able to claim deduction under this section. Chetan Chandak, Head of Tax Research, H&R Block India says, "Post Budget 2018, section 80TTA has been amended which restricts senior citizens from claiming any deductions on interest received on savings account either with bank or post office under this particular section. However, they can claim deduction up to Rs 50,000 for interest received from savings account and fixed deposit with banks and post office under the newly inserted section, i.e., section 80TTB."

Only available to senior citizens who are residents
Another thing to keep in mind while claiming this deduction, is that it is available only to those senior citizens who are resident individuals. Vasudeva says, "This deduction is available to a senior citizen who is a resident of India as per the Income Tax Act. Thus, senior citizens with non-resident status (NRI) will not be able to claim deduction under this section."

"However, as a relief, NRIs can continue to avail the deduction available for interest earned from savings account for maximum up to Rs 10,000 under section 80TTA", adds Chandak.

How senior citizens can use this tax break to the maximum
A senior citizen can use this tax break to the maximum by investing in deposits with the entities specified above such that the total interest income from these is nearly Rs 50,000 per financial year. This interest income would effectively be tax-free for them as it would be deductible from their income before levy of tax.