Quoting all your income details in ITR is utmost important. Though interest from bank deposits, bonds and most post office schemes is fully taxable, it has been  found that almost 80% of taxpayers do not report any interest income. Not declaring this income amounts to tax evasion and could fetch a notice from the tax department.

Making matters worse, if the undeclared income is substantial and tax has not been paid on it, you could be slapped with a late payment penalty. Many taxpayers are under the misconception that if TDS has been deducted on their fixed deposits, they don’t have to pay more tax. It is only 10% of the interest income. If the taxpayer falls in a higher tax slab, he must pay additional tax.

Savings bank interest

Under Section 80TTA, up to ₹10,000 interest earned on the savings bank account is tax free. Only the interest exceeding ₹10,000 is liable to tax. This is a very high threshold because at 4% interest, you will earn ₹10,000 interest only if you let ₹2.5 lakh idle in your savings bank account for a year. In other words, most small taxpayers will not hit that threshold of the exempt income. Even so, this income too has to be reported.

Reporting tax-free income

While interest from bank deposits is fully taxable, even tax-free incomes have to be declared. In ITR-1, there is a separate section for disclosing exempt income. In other forms, this must be reported under Schedule EI (Exempt Income). Similarly, while dividends up to ₹10 lakh are tax free under Section 10(34) and income from a life insurance policy is tax free under Section 10(10d), these incomes must be reported in the tax form. Experts say large amounts should be declared. Disclosing this income creates a trail and gives the taxpayer a ready explanation for use of such money in future.

When you make high-value investments or purchases, the transaction is reported to the tax authorities. Taxpayers are also required to declare tax-free capital gains.

Scrutiny by tax department

The tax department is putting all deductions and exemptions under the scanner. Salaried employees who claim exemption for HRA have to furnish the PAN of the landlord if the exemption exceeds ₹1 lakh. If above ₹50,000 a month, they also have to deduct TDS on the rent.