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Manage tax liability on interest income from savings and deposits

'INCOME from other sources' is one income head which individual tax payers, whether salaried or not, tend to treat lightly, mostly on account of lack of awareness of what it entails. It is basically a residuary head under which all monetary receipts, classifiable as income, are put in that cannot be put in the heads of salaries, house property income, business or professional profits and capital gains.

Further, among the incomes that would qualify for `other sources' category, is one source, which is the most, ignored. This is the interest an individual earns on his money in bank savings accounts, bank deposits, fixed or recurring.

Barring negligible number of cases, most salaried or non-salaried income earners get their receipts in their savings account. Moreover, in the past decade, with banks offering sweepin facility on their fixed deposits, bank deposits are being increasingly used by individuals.

Disclose and pay tax Interest from bank savings or deposit accounts has to be statutorily disclosed in the income tax return and tax paid on it. With the computerisation of income tax (IT) department's records and compliance requirements for various entities, including banks, regarding filing quarterly tax deducted at source (TDS) and other statements, the information is becoming increasingly available with the IT department. Factor in your Form no. 26AS (statement of tax deducted at source on all your sources of income) for giving credit of prepaid taxes, and it becomes all the more important to disclose the bank interest or other income irrespective of quantum

How and when?

You have to first estimate the quantum of your bank interest income. calculate the tax payable at the rate that will apply to you after adding it to your salaried or non-salaried income net of permitted deductions .

Deduct from it the estimated TDS your bank will carry out on your FD interest at the end of the year at the rate of 10 per cent. KPMG's Sirwalla alerts that for the current tax year, that if from April 1 to March 31 2013, there is a deduction available upto Rs 10,000 per annum on savings bank interest.

Advance tax on all 'other sources' income, including bank interest, has to be paid if you estimate it to go beyond Rs 10,000. If it is below Rs 10,000, you can pay tax till the tax return filing deadline. Advance tax can be paid in instalments — 30 per cent of your estimated quantum for a AprilMarch tax year has to be paid before September 15 of that year, 60 per cent by December 15 and 100 per cent by March 15.

Non-salaried individuals have to necessarily do this through self-assessment tax challans which can be done in select branches of a few banks or online at IT department's authorised website, http://www.tin-nsdl.com.

Salaried individuals have an additional choice of declaring their estimated interest income to their employers and make them deduct tax on the combined sum of salary and interest income.

Delayed tax payment attracts penalty. As per Sirwala, shortfall for any of the installments is charged penal interest at the rate of one per cent per month on such shortfall.

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