When calculating liability, check the not-so-obvious sources of income, too.
While filing your income tax returns, there are minor details that need to be considered, especially on the receipt side. Incomes earned from different sources, though small in nature, can impact increase the taxable income, and therefore, the tax outgo.
Several heads of income are evident, like salaries or dividends. The amount received is reflected in the bank account and separate intimation is also made available. The employer provides a Form 16, while the company or mutual fund paying a dividend issues account statements showing the shares or units held and the amount earned. This makes it easier to remember and include these incomes during tax calculations.
At the same time, there are items not so evident but still representing income. Non-inclusion of such items in the tax return will invite a penalty later. Below are some of the sources of income, with details of how to remember them.
SAVINGS BANK INTEREST
This income is earned on the balance remaining in a savings bank account. While several public sector banks have a minimum balance requirement of Rs 1,000, most private sector banks require an average quarterly balance of Rs 5,000 or Rs 10,000. Since the interest amount is directly credited to the bank account and there is no receipt given by the bank, this income tends to slip out of the radar for many people.
Though the interest earned on savings in a bank account is just 3.5 per cent, there are cases when the interest amount crosses Rs 2,000, especially for those in high income tax bracket. Details will be clear, if one takes a close look at all entries in the bank statement or in the pass book.
FIXED DEPOSIT INTEREST
There are two ways in which interest earned on fixed deposits (FD) is received. It can be paid at regular intervals, specified by the investor, so that the amount comes to him and is usually credited in the bank account. This is easy to track and include during tax calculations.
There are also cumulative fixed deposits, where the interest is not paid at intervals but is accumulated and then paid at the time of maturity. Since there is no interim payment, it becomes very easy to forget this income for the intermediate years. When the deposit matures, the accumulated figure comes at one go. A complication that often arises here is that as the income might be high there is a tax deducted at source (TDS). In such a case, if the income is not mentioned, then there cannot be a refund claimed.
The manner in which the individual has to account for this item is to ask the bank each year for an interest certificate. The bank will provide the interest details, along with the TDS, if any. This certificate is essential, especially if there is TDS, and the bank will give this only to the account holder, so your action is essential.
NSC INTEREST
The tax-saving National Savings Certificate (deduction under Section 80C upto Rs 1 lakh) is a six-year instrument that pays the entire amount at the time of maturity. A sum of Rs 1,000 becomes Rs 1,601 after six years, as the interest is compounded on half-yearly, given a yield of 8.16 per cent. Again, since the amount is not paid out, there is no inflow in the bank account and so, this income is often forgotten to be included during tax calculations.
Unlike a bank deposit, there will not be any annual statement provided, so the onus is entirely on the individual to ensure the required amount is included when calculating taxes. Also, since the amount is compounded, the interest earned during the year is considered to be reinvested and, hence, can be considered for deduction under Section 80C in subsequent years.
The writer is a certified financial planner
