Did you also skip your interest income while filing ITR
It is a common problem in assesses that they skip their interest income in ITR due to various reasons. Some of them file their ITR without the help of a professional and some portion of their income remain unaccounted. In a recent press release CBDT raised concern regarding the interest income which is not shown in Income Tax returns.CBDT directed the assesses to show their interest income properly.
The reason behind this may be some misconception regarding taxability of interest income. Most of the assesses are of opinion that interest on FD is tax free but it is not true interest on FD even on Tax savor FD of five years is taxable. Even so many financial planners pitching the product to the people push this misconception into the mind of Income tax payers.
Interest on Bonds is also a major unaccounted income. Many assesses think that interest on infrastructure bonds is exempt from tax. Let us make it clear interest from all bonds including infrastructure bonds and 54 EC bonds is taxable. The only exempted interest is of Tax free bonds issued by notified PSU’s in the month of January to March every year.
NCD is another product fetching interest income and interest on NCD’s is also taxable. There are some other products like liquid funds. It is important to understand the taxability of interest income on liquid funds. Most of tax payers are confused about taxability of Liquid Funds.Let us make it clear.
If you have chosen the dividend option then the income of liquid funds will be subject to Dividend distribution tax in the hands of company and hence will be exempt in the hands of assessee. But if you have chosen the growth option then it will not be liable for dividend distribution tax and will be taxable in the hands of receiver. Although benefit of indexation will be given to calculate the capital gain.( Long term capital gain if holding period is of more than 3 years)
Let us have a summarise table showing the taxability of various interest bearing products and also the eligibility for TDS.
| Product | Taxability | Relevant Section of IT Act | TDS |
| Saving Bank Account | Tax free upto Rs. 10000 | Section 80 TTA | No |
| Recurring Deposit | Fully Taxable | 10% TDS | |
| Fixed Deposit | Fully Taxable | 10% TDS | |
| Infra Bonds | Fully Taxable | 10% TDS | |
| PPF | Tax Free | Section 10(11) | No |
| Tax Free bonds | Tax Free | Section 10(15)(iv)(h) | No |
| NSC’s | Fully Taxable | No | |
| Post Office term deposit | Fully Taxable | No | |
| Kisan Vikas patra | Fully Taxable | No |
Next time before filing your return take care to disclose all income to prevent the undue litigation.
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CA Shafaly Girdharwal
CA
New Delhi, India
CA Shaifaly Girdharwal is a GST consultant, Author, Trainer and a famous You tuber. She has taken many seminars on various topics of GST. She is Partner at Ashu Dalmia & Associates and heading the Indirect Tax department. She has authored a book on GST published by Taxmann.
