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.