I-T Department wants you to declare all interest income in your ITR

In a circular released on Tuesday, the Central Board of Direct Taxes has warned the taxpayers who do not declare all their interest income in their ITRs to correct their ways. They have been asked to re-file and rectify their returns for FY 2013-14 onwards.

You'll have to declare even those interest incomes where Form 15 G/H have been filed and the total exceeds the maximum amount not chargeable to tax, that is, Rs 2.5 lakh. Only interest income up to Rs 10,000 exempted under Section 10 may be left out. The deadline for this is 31st March 2016. If missed, you will be liable to pay a Rs 5,000 penalty under avoid penalty Section 271F of the I-T Act.

While form 26AS reflects only those payments on which tax has been deducted, the department can track your other deposits and interest payments received without deduction of tax too via information received from banks and other financial institutions. "Information regarding interest earned by individuals and business entities on term deposit is filed with the Income Tax Department by banks including co-operative banks and other financial institutions and state treasuries, etc," said the circular.

In an online survey conducted by economictimes.com last August, 30% of the 2,168 respondents believed that interest of up to Rs 10,000 from bank FDs is tax free in a year. However, as per the rules,the exemption under Section 80TTA is only for the interest on the savings bank accounts. What one earns from on fixed deposits and recurring deposits is fully taxable. You also need to declare all those interest income where TDS has been deducted or you have filed Form 15 G/H.