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Beware! The Government Is Eyeing Your Interest Income

People investing in fixed deposits——-including a vast majority of senior citizens——are worried aboutearning a lower interest on their deposits, and also because the incidence of tax has been eroding their interest earnings severely. So what’s the remedy? They simply don’t report or underreport their interest income, which isn’t the right solution though. It’s a reflection of their belief in some myths that can prove dangerous for them. Are you under the wrong impression too? Myth 1: I am a small fish for the tax department, and my interest income will not catch the taxman’s attention; so I can afford to conceal it and miss the tax thereon. Fact: At the time of making a fixed deposit, you have to submit your PAN details. As the PAN is mapped against all your deposits; you cannot get away by concealing any income activity. Income-Tax (I-T) Departmentwill call your bluff, and you will have nothing going in your favour. Myth 2: I don’t have to pay tax on my interest income as it’s been already deducted in the form of TDS (Tax Deducted at Source). Fact: Banks, Non-Banking Financial Company (NBFCs), or other entities accepting deposits deduct tax only at 10% of the interest due to you. If you fall in the higher tax slab, you have to pay the balance tax from your pocket. Myth 3: I can submit the form 15G/15H with the bank and other institutions where I have fixed deposits, as I am paying tax at the end of the Financial Year. TDS is a freebie awarded to the Government. Why should I do such charity? Fact: You have to satisfy certain conditions before you can claim relaxation from the TDS provisions. Please note, whenever your interest income from fixed or recurring deposits exceeds Rs 10,000 in a financial year, provisions of TDS are applicable. However, the tax laws have offered some concessions. You should submit Form 15G if

Your net taxable income doesn’t exceed the basic exemption limit of Rs 2.5 lakh.

Your total interest income including the interest income exempt from tax, e.g. interest on PPF and tax-free bonds, doesn’t exceed Rs 2.5 lakh.

And Form 15H if You are a senior citizen, and your net taxable income doesn’t exceed Rs 3 lakh, you can submit Form 15H. The limit is further extended to Rs 5 lakh in case of very senior citizens—those above 80. But submitting 15G and 15H, when you don’t fulfil the set criteria, can land you in trouble. When you submit 15G or 15H to a bank or anyone paying you interest; you won’t be questioned by that entity/person. However, as per the reporting mechanism, they will intimate the I-T Department about your submission of the 15G/15H form. You will face real trouble when the information about your interest income from all sources will be clubbed under Form 26AS.

What’s 26AS?

Besides offering details of advanced tax you have paid, Form 26AS gives you a consolidated account of your income and TDS in a given Financial Year. It also contains details about tax paid to the Government by a person/entity deducting your tax. It offers information on tax refunds as well. It can be obtained from the website of the I-T Department and is updated on quarterly basis.

Myth 4: You can give a monetary gift to your spouse and to the minor children. Since this doesn’t attract any gift tax, income earned or accrued on gifted money won’t be counted as the receiver’s income. Fact Although gifting money to your dependent spouse or minor children isn’t taxable; provisions of clubbing the income still apply on the interest earned or accrued on deposits made on the money. In the case of children, there’s an exemption of income of upto Rs 1,500 per children, upto two children. Nonetheless, provisions of clubbing income won’t apply if a son/daughter gifts money to his/her parents and they earn interest on it. At a time when your PAN is linked to your Aadhaar and Aadhaar is becoming mandatory for almost everything, you will not get away with any attempts to evade taxes. To keep in the clear, pay all your tax dues and file your tax return before the deadline without compromising on any legal requirements.

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