The section applicable from assessment year 2013-2014 applies strictly to savings bank account and not to time or term deposits.
Some other aspects of Section 80TTA
1. The deduction allowed u/s 80TTA is over and above the deduction allowed as per section 80C.
2. The total deduction allowed to an individual or HUF assessee is Rs.10,000 for all the savings bank account combined together. For eg. If an individual maintains 3 different savings account and earn Rs. 5000 from each of the account during a financial year then he is entitled to claim deduction for Rs. 10,000 u/s 80TTA and would need to pay tax on the balance amount of Rs. 5000.
3. The increase in interest income on savings account over Rs. 10,000 while the gross total income is well below the exemption limit does not requires an individual to file income tax return.
How can you claim for the deduction u/s 80TTA ?
As interest income earned from savings account is taxable under the head 'Income from other sources'. You need to first include the interest income in your total income and then claim for the deduction u/s 80TTA.
Simply put, if you have a savings bank account and maintain an average balance of Rs. 2.5 lakh during a particular fiscal year that provides an interest @ 4% p.a, your interest income of Rs. 10,000 would be exempt from tax. However, if you earn an interest income over Rs. 10,000 on savings bank account with the bank or post office or a cooperative society, say for instance Rs. 15,000, you can claim deduction for Rs. 10,000 u/s 80TTA and pay tax on the remaining Rs.5000.
So, with the available deduction u/s 80TTA, taxpayers will no longer have to include small interest amount earned on savings account to their total income while calculating taxable income.