Filing of IT returns can be quite a task especially if you are not salaried, in which case your employer gives you a form 16 which you could use for reference. While most of us may declare our holdings in shares, ELSS, etc., we tend to omit a section under Income from other sources – Interest from bank deposits.
Interest from Bank deposits can be categorized as follows
1. Interest on Savings Bank Account
The interest earned is tax free up to Rs10000 i.e. there is no TDS deducted for income up to Rs10, 000 and any amount above that would be taxed at a marginal rate.
2. Interest on Fixed Deposits
The interest earned is taxed according one’s tax slab. However most banks deduct TDS for interest above Rs10, 000.
3. Interest on Recurring Deposits
Banks do not deduct TDS for interest income from recurring deposits, but the interest earned is taxable under the applicable income tax slab.
If the total income from interest earned from all your bank deposits do fall within the taxable limits then you need to inform the bank the same(by form 15G/H) so they do not deduct TDS.
It isimportant to make the declaration for the above incomes earned. There is more than one reason why this declaration is a must when filing your returns
- The IT Dept. conducts random checks on taxpayers and if they find any undisclosed income then the dreaded income IT notice would find its way to your doorstep.
- However small or insignificant the amount earned may be but if the declaration is not made then the penalties are quite high.
- The penalties could go up to 300% of the tax applicable on the undisclosed income depending on the decision of the assessing officer
- There is interest charged on the tax not paid for the days till you finally make the payment.
- Another important reason is that the tax slab could change if you wait to get the interest income in hand and you may have to pay a higher amount of tax.
Declaration of interest income, which otherwise may seem insignificant, is in our interest literally as the Government gets the data on the interest paid out by banks. And with technology driving these functions there is not much you can actually hide from the authorities.