Tax Talk

Of late, banks have been offering sweep-in-sweep-out accounts. While they are supposedly savings account, the balance maintained in these accounts above a threshold is converted to liquid FDs and paid higher interest. I would like to know if the interest earned from these accounts is tax exempt under Section 80TTA.

- Anirudh Govind Rajan

According to section 80TTA of the Income-tax Act,1961, the aggregate amount of interest earned for AY 2013-14 onwards (i.e. FY 2012-13 onwards) on the savings bank account or Rs 10,000, whichever is lower, shall be allowed as a deduction against the total income. This benefit of the deduction is available to an individual or HUF in respect of the interest earned on saving bank account with a Bank, post office or cooperative society as specified.

The deduction is not applicable to interest earned on time deposits (i.e. deposits repayable on expiry of fixed term). This means interest earned through the sweep-in-sweep-out facility is not allowed for deduction.

Please advise whether all kinds of donations can be accepted from employees and be given deductions in Form 16. TDS circular of CBDT does not specify the same.

- Sanjay Patil

According to the Income-tax Act 1961, donations made towards recognised funds and institutions (religious and charitable) are entitled to a tax deduction. Donations made to a specific list of approved institutions and funds are eligible for a deduction of 100 per cent of the amount donated. Further, there are a number of institutions that have been approved by the Government and donations made to such institutions are also eligible for a deduction of 50 per cent of the amount donated. In some cases, the qualifying amount for deduction is restricted to 10 per cent of the adjusted gross total income. Donation in kind is not eligible for deduction.

The Central Board of Direct Taxes issues a circular every year specifying the responsibility of the employer for deduction of tax at source from salary. This circular contains information on when the employer can give deductions, if donations were made to certain specific funds. Deduction for other donations can be claimed by the employees in their respective income-tax return.

However, the recent circular on TDS on salary for fiscal 2012-13 makes a departure from the earlier position and casts no such restriction. The only restriction imposed in the above circular is that donations of Rs 10,000 or more in cash will not be eligible for any tax deduction.

Please note that donations for which the qualifying amount for deduction purpose is restricted to the rate of 10 per cent of the adjusted gross total income, the employer may consider giving the benefit of deduction, when the employee furnishes a declaration of the gross total income earned by him during the relevant financial year.