Banks to report all interest income paid to account holders

January 20, 2023

Banks and post offices will now have to report all the amounts paid as interest to depositors as part of the move towards pre-filled income tax forms. The income tax department has abolished the threshold of ₹5,000 above which any interest paid to a depositor had to be earlier reported.

In a recent notification, the Central Board of Direct Taxes has said that banks will have to report “any interest income exceeding ₹ zero” for all account and deposit holders in a financial year excluding Jan Dhan Accounts. The notification is effective January 5.

Section 285BA of the Income Tax Act, 1961 and Rule 114E requires specified reporting persons to furnish statement of financial transaction (SFT). For the purpose of interest income, banks, post offices and deposit taking NBFCs earlier had to provide data on cumulative interest of ₹5,000 paid to account holders in a financial year.

The move, may help plug revenue leakage to some extent as often many depositors do not pay tax on interest income. But experts said that it has to be seen in line with the move towards pre-filled income tax returns.

“This is a step in the government’s direction of moving to prefilled tax return so that the entire interest income gets populated in the return automatically,” said Divya Baweja, Partner, Deloitte India.

The CBDT notification has also referred to a previous notification of March 2021 to include reporting of information relating to interest income for the purpose of prefilling the return of income.