Direct and Indirect Taxation · Deductions, Rebate and Relief

Deductions for Specified Incomes and Persons under Income Tax

Updated 10 October 2026 · Fact-checked

These are deductions from gross total income that depend on the kind of income or the kind of taxpayer. Interest on deposits (section 153) is allowed up to ₹10,000 on savings accounts for non-seniors and HUFs, and up to ₹50,000 on any deposit for senior citizens. Check the person, the income, the cap, then deduct the lower amount.

Understand Deductions for Specified Incomes and Persons

Some deductions are not about what you invest in. They are about who you are or what income you earn. Interest on bank deposits is the clearest case. Each such deduction has a taxpayer test, an income test, and a cap.

The rule covered here is section 153 of the Income-tax Act, 2025, on interest on deposits. It applies to an individual (senior citizen or not) and to a HUF, where gross total income includes interest on deposits with a banking company, a co-operative society carrying on banking business, or a Post Office.

For an individual who is not a senior citizen, and for a HUF, the whole of the interest on savings account deposits is allowed, up to ₹10,000. Time deposits (deposits repayable on expiry of fixed periods) are excluded. For a senior citizen, the whole of the interest on deposits in any account, including time deposits, is allowed up to ₹50,000.

Two sub-sections deny the deduction to the partners and members behind a firm, an association of persons or a body of individuals:

Sub-section (3) covers savings account interest under (2)(a). If it is derived from a savings account held by or on behalf of a firm, AOP or BOI, no partner, member or individual of the body gets the deduction on that income.
Sub-section (4) covers interest under (2)(b). If it is derived from any deposit held by or on behalf of a firm, AOP or BOI, no partner, member or individual of the body gets the deduction on that income.

Other specified deductions have their own sections, caps and conditions. For those, use your ICMAI material and the facts in the question. They are not reproduced here.

Key rules to remember

Deduction for non-senior individual or HUF (section 153): Deduction = lower of (savings account interest, ₹10,000); Time deposit interest is excluded. Applies to deposits with a bank, a co-operative bank or a Post Office.
Deduction for senior citizen (section 153): Deduction = lower of (interest on all deposits, ₹50,000); Includes time deposits such as fixed and recurring deposits, within the listed institutions.
Time deposits: Time deposits = deposits repayable on expiry of fixed periods; This is the definition in section 153(5).
Savings account held by a firm, AOP or BOI (section 153(3)): No deduction to partner, member or individual of the body on interest under (2)(a); The interest must be derived from a savings account held by or on behalf of the firm, AOP or BOI.
Deposit held by a firm, AOP or BOI (section 153(4)): No deduction to partner, member or individual of the body on interest under (2)(b); The interest must be derived from any deposit held by or on behalf of the firm, AOP or BOI.

How to solve Deductions for Specified Incomes and Persons questions

Use the same sequence for every question on specified deductions, so you never skip a condition.

1Identify the assessee: individual below senior citizen age, senior citizen, HUF, firm, AOP or BOI, or company.
2Identify the income that triggers the deduction, and the institution attached to it: a bank, a co-operative bank or a Post Office.
3Check the exclusions: time deposits for non-seniors and HUFs, deposits held by or on behalf of firms, AOPs or BOIs, and non-bank institutions.
4Make sure the income is actually included in gross total income. A deduction cannot exceed the income it relates to.
5Apply the cap: take the lower of the actual qualifying interest and the cap, and write each figure out.
6Deduct the result from gross total income, after any other deduction ordering your question requires.
7State the final deduction clearly and add a one-line reason for any amount denied.

Quickest way: Person, income, cap

When to use it: Use for MCQs and for the first minute of a written answer.

Write the person in the margin: non-senior, senior or HUF.
For deposit interest: non-senior or HUF takes savings interest only, cap ₹10,000. Senior takes all deposit interest, cap ₹50,000.
Check who holds the deposit. If it is held by or on behalf of a firm, AOP or BOI, the partner or member gets nothing on it (sub-section (3) for savings interest, sub-section (4) for deposits).
Take the lower of actual qualifying interest and the cap.

Common mistakes in Deductions for Specified Incomes and Persons

Allowing fixed deposit interest to a non-senior individual under section 153.
Students remember the ₹50,000 figure and forget it is only for senior citizens.
Fix: For a non-senior or HUF, only savings account interest qualifies, up to ₹10,000. Time deposits are excluded.
Applying the ₹10,000 cap to a senior citizen.
The two caps are mixed up.
Fix: A senior citizen gets up to ₹50,000 on deposits in any account, including time deposits.
Allowing the deduction on interest from a company deposit or a non-banking finance company.
Any interest feels like deposit interest.
Fix: Section 153 covers only a banking company, a co-operative society carrying on banking business, and a Post Office.
Deducting the full amount of interest even when it is under the cap.
The word 'maximum' is treated as a fixed amount.
Fix: The deduction is the lower of actual qualifying interest and the cap.
Giving a partner a deduction on interest earned by the firm.
The firm's income flows to the partner, so students assume the benefit does too.
Fix: Sub-section (3) denies the deduction on savings account interest and sub-section (4) denies it on deposit interest, where the deposit is held by or on behalf of a firm, AOP or BOI. The partner, member or individual of the body gets nothing on that income.

Worked examples

Example 1

Mr. Ramesh Iyer, aged 65, is a senior citizen. His gross total income includes interest of ₹18,000 on a savings account with a bank, ₹72,000 on bank fixed deposits and ₹10,000 on a Post Office time deposit. Find the deduction under section 153.

Show the solution

Assessee: senior citizen, so section 153(2)(b) applies.
All three deposits are with a bank or Post Office, so they qualify, including time deposits.
Total qualifying interest = ₹18,000 + ₹72,000 + ₹10,000 = ₹1,00,000.
Cap = ₹50,000.
Deduction = lower of ₹1,00,000 and ₹50,000 = ₹50,000.

Answer: Deduction under section 153 is ₹50,000.

Example 2

Mr. Anil Mehta, aged 40, is not a senior citizen. His gross total income includes interest of ₹14,000 on a savings account with a bank and ₹30,000 on a bank fixed deposit. Find the deduction under section 153.

Show the solution

Assessee: individual who is not a senior citizen, so section 153(2)(a) applies.
Only savings account interest qualifies. The fixed deposit is a time deposit and is excluded.
Qualifying interest = ₹14,000.
Cap = ₹10,000.
Deduction = lower of ₹14,000 and ₹10,000 = ₹10,000.

Answer: Deduction under section 153 is ₹10,000. The ₹30,000 fixed deposit interest gets no deduction.

Exam tips

In MCQs, the trap is almost always the person: senior or non-senior, individual or firm. Read that first.
Write the section 153 caps next to the assessee type, and show 'lower of' in your working. Step marks go to this line.
Show actual interest and the cap side by side before you pick the lower figure.
If a question gives interest from a non-bank source or a firm deposit, say clearly why it is denied rather than leaving it out silently.
For other specified deductions, use the section, caps and conditions in ICMAI study material and the question, and state any assumption you make.

Practice questions from Deductions, Rebate and Relief

Deductions for Specified Incomes and Persons in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Deductions for Specified Incomes and Persons: frequently asked questions

Can a senior citizen claim a deduction on fixed deposit interest?

Yes. Under section 153(2)(b), a senior citizen gets the whole of the interest on deposits in any account, including time deposits, up to ₹50,000. The deposit must be with a bank, a co-operative bank or a Post Office.

Does a HUF get the savings interest deduction?

Yes, but only on savings account interest, up to ₹10,000. Time deposits are excluded. The ₹50,000 limit is for senior citizen individuals.

Does a partner get the deduction on interest earned by the firm?

No. Under sub-section (3), no deduction is allowed to a partner or member on savings account interest held by or on behalf of a firm, AOP or BOI. Under sub-section (4), the same denial applies to interest on any deposit held by or on behalf of such a body.

What is a time deposit?

Section 153(5) defines time deposits as deposits repayable on expiry of fixed periods. Fixed deposits are the usual example. They do not qualify for a non-senior individual or a HUF.