In a bid to widen the tax base as well as to catch tax evaders, tax authorities are now turning their focus to individuals earning FD interest of Rs 5 lakh or more.
If you are among those individuals who have high interest income from fixed deposits (FDs) but don’t show it in their income tax return or avoid paying tax on it, then there is some bad news for you. For, in a bid to widen the tax base as well as to catch tax evaders, tax authorities are now turning their focus to such individuals, basically those earning interest income of Rs 5 lakh or more, according to a Times of India report.
According to the report, even senior citizens, many of whom either do not include FD interest in their taxable income or do not pay any tax, will now come under the I-T lens.
It is already known to all of us that only a small percentage of our population pays income-tax and files its income tax returns. Therefore, it need not be mentioned that we are largely a non-tax compliant society and this issue needs to be addressed. The government needs large amount of funds to support various socio-economic measures and meet the rising demands of education, healthcare, defence, infrastructure and housing for the masses. All these measures require huge amount of funds. Tax collections is an important source of revenue to meet these diverse demands of the country.
“Accordingly, a number of steps have been taken by the government in the recent past to encourage people to come in the mainstream, comply with the tax laws and pay their due taxes. It is pertinent to note that now government has access to huge amount of information through various sources. This information coupled with data analytics throws open various discrepancies in income, expense and asset acquisitions by individuals. Thus, specific areas like interest income on deposits and savings bank accounts are being looked into to evaluate whether people are paying taxes on the same or not, and to encourage them to file their correct tax returns,” says Vikas Vasal, Partner & National Leader-Tax, Grant Thornton India LLP.
Here are some important things to know about this move by the Income Tax Department and what we need to do:
1. For the time being the focus of the tax authorities will be on large tax evaders, particularly those earning interest income of Rs 5 lakh or more. Therefore, there is no need to worry if you forget to mention small amounts of interest income in your I-T return, at least for now. However, you need to remember that as per tax rules, it is mandatory to show details of operational bank accounts in the ITR.
“It is a common perception among individuals that it is enough to report only one bank account in the ITR. However, it is mandatory to provide details of all savings and current bank accounts operational anytime during the FY in the ITR,” says a tax expert.
Incorrect reporting of bank account details such as incorrect bank account number or IFSC code may result in non-delivery of the eligible tax refund. Thus, tax payers should make sure to provide correct bank account details to claim eligible tax refund smoothly. Individuals may also skip to report the interest earned from the bank accounts assuming it to be tax free or because tax has already been deducted at source.
However, interest earned from savings bank account, fixed deposits and recurring deposits is fully taxable. Section 80TTA of the Act allows deduction up to Rs 10,000 for the interest income from all savings bank accounts earned during the year. Thus, even where interest income is less than Rs 10,000, the interest income needs to be reported as taxable income and deduction under Section 80TTA should be claimed in the ITR.
Also, interest income from fixed deposit, recurring deposit, NRO is subject to TDS provisions and tax is deducted at source at applicable rates. For example, suppose a bank has deducted TDS @ 10% on interest income on fixed deposits held by a resident individual. However, the interest income is taxable in the hands of individual at applicable slab rate. Thus, the individual may need to pay the balance tax as advance tax or self-assessment tax before filing the ITR.
2. The move is part of the tax department’s attempt to widen the tax base and meet their targets. In case they fall short of their targets, then they will turn their focus on small evaders as well. So, it is in your own interest to pay your tax honestly and correctly.
3. Even professionals like doctors and consultants, who usually take their fee in cash and don’t show it as their income, may come under the I-T lens as the lifestyle of many of them is quite different from their reported income.
4. Now the government has access to huge amount of information through various sources. This information coupled with data analytics throws open various discrepancies in income, expense and asset acquisitions by individuals. Thus, no one can fool the government and the tax department for a long time now.