NSC Accrued Interest
This query is : Resolved
16 June 2008
Under the Income Tax Act Individuals can compute their taxes either on cash basis or on accrual basis.
Still why is it that many people get into the process of computation of accrued interest on their NSC certificates held and take that into account while computing their yearly taxes?
They take accrued interest on NSC under the head - Income from other sources and show the same as deduction u/s 80C.
Is not it simpler to only show the interest earned during the year of maturity of NSC as income from
other sources in the year of maturity of NSC?
Still why is it that many people get into the process of computation of accrued interest on their NSC certificates held and take that into account while computing their yearly taxes?
They take accrued interest on NSC under the head - Income from other sources and show the same as deduction u/s 80C.
Is not it simpler to only show the interest earned during the year of maturity of NSC as income from
other sources in the year of maturity of NSC?
16 June 2008
Hi Anil..
Although one can follow cash or Accrual method....Accrual concept is the most scientific and rational approach....Infact Accrual concept is one of basic assumption of accounting priciples according Accounting Standard-1..If interest accrued on NSC is not accounted on yearly basis it does not give correct picture of income of an individual as interest at the time of maturity belongs to not only year of maturity but spread over (LOCK IN PERIOD )life of NSC...
Although one can follow cash or Accrual method....Accrual concept is the most scientific and rational approach....Infact Accrual concept is one of basic assumption of accounting priciples according Accounting Standard-1..If interest accrued on NSC is not accounted on yearly basis it does not give correct picture of income of an individual as interest at the time of maturity belongs to not only year of maturity but spread over (LOCK IN PERIOD )life of NSC...
16 June 2008
Thank you very much sir.
IF one opts for declaring NSC accrued interest every year till maturity, Should he also similary account FD interest assuming the FD period exceeds one year span?
In other words , can one follow Accrual method for NSC accrued interest and Cash method for FD interest?
IF one opts for declaring NSC accrued interest every year till maturity, Should he also similary account FD interest assuming the FD period exceeds one year span?
In other words , can one follow Accrual method for NSC accrued interest and Cash method for FD interest?
16 June 2008
Well...another basic assumption according to AS-1 is CONSISTENCY in following accounting policies...so u should follow either Cash or Accrual..its not scientific follow both...
16 June 2008
Thanks again for your response sir.
Are Accounting Standards applicable to individuals?
Please let me know the source (Books/ websites / AS etc) where it is mentioned that Accounting standards are applicable to individual assassees.
Thanks.
Are Accounting Standards applicable to individuals?
Please let me know the source (Books/ websites / AS etc) where it is mentioned that Accounting standards are applicable to individual assassees.
Thanks.
16 June 2008
Hi
For the purpose of applicability of Accounting Standards, enterprises are classified into three categories,
viz., Level I, Level II and Level III. Level II and Level III enterprises are considered as SMEs. The criteria for different
Level I enterprises are required to comply fully with
all the accounting standards.
3. It has been decided that no relaxation should be given to Level II and Level III enterprises in respect of recognition
and measurement principles. Relaxations are provided with regard to disclosure requirements.
Accordingly, Level II and Level III enterprises are fully
exempted from certain accounting standards which primarily
lay down disclosure requirements. In respect of certain other accounting standards, which lay down
recognition, measurement and disclosure requirements,
relaxations from certain disclosure requirements are
given. The exemptions/relaxations are decided to be
provided by modifying the applicability portion of the
relevant accounting standards.
For the purpose of applicability of Accounting Standards, enterprises are classified into three categories,
viz., Level I, Level II and Level III. Level II and Level III enterprises are considered as SMEs. The criteria for different
Level I enterprises are required to comply fully with
all the accounting standards.
3. It has been decided that no relaxation should be given to Level II and Level III enterprises in respect of recognition
and measurement principles. Relaxations are provided with regard to disclosure requirements.
Accordingly, Level II and Level III enterprises are fully
exempted from certain accounting standards which primarily
lay down disclosure requirements. In respect of certain other accounting standards, which lay down
recognition, measurement and disclosure requirements,
relaxations from certain disclosure requirements are
given. The exemptions/relaxations are decided to be
provided by modifying the applicability portion of the
relevant accounting standards.
16 June 2008
Go through this link to know more about applicability of AS
http://www.icai.org/icairoot/publications/complimentary/cajournal_nov03/p480-489.pdf
http://www.icai.org/icairoot/publications/complimentary/cajournal_nov03/p480-489.pdf
16 June 2008
1)Please let me know whether Individuls can be considered as Enterprises. If yes, Kindly QUOTE source reference.
2)The Level of an enterprise is determined based on Turnover and borrowing criteria. How can an individual decide to which level he falls
Thanks
2)The Level of an enterprise is determined based on Turnover and borrowing criteria. How can an individual decide to which level he falls
Thanks
16 June 2008
The link you have mentioned DOES NOT say that All individul assassees can be considered as enterprises.
16 June 2008
Please note that the individual in my case is an salaried employee and not an sole propritory concern. He does not prepare financial statments.
16 June 2008
Hi
An individual having business income from sole trading concern can decide right....
Accounting standards are there to regulate accounting polocies & maintain uniformity in treatment of transaction..
If u r taliking about an individual without any business income...its better not apply AS to them....
Hope ur doubt is clear...
An individual having business income from sole trading concern can decide right....
Accounting standards are there to regulate accounting polocies & maintain uniformity in treatment of transaction..
If u r taliking about an individual without any business income...its better not apply AS to them....
Hope ur doubt is clear...
16 June 2008
Thanks.
It is clear that AS is not applicable in the case I have mentioned.
In the light of above now I request you to kindly answer my original querry regarding NSC interest.
It is clear that AS is not applicable in the case I have mentioned.
In the light of above now I request you to kindly answer my original querry regarding NSC interest.
16 June 2008
Hi Anil..
Interest on NSC is taxable under the head 'Income from other sources'.
Generally, it is advisable to declare accrued interest on NSC on a yearly basis. So, over the period of six years, you could declare the interest income for each year. In such cases, it does not amount to a huge sum.
If you do not declare the interest on an accrual basis, then the entire interest earned (difference between the amount deposited and the maturity value) would accumulate in the year of maturity. You could then claim it under Section 80C, but it would be a huge amount and would be taxable at the current applicable tax rate.
Hope u r convinced..
Interest on NSC is taxable under the head 'Income from other sources'.
Generally, it is advisable to declare accrued interest on NSC on a yearly basis. So, over the period of six years, you could declare the interest income for each year. In such cases, it does not amount to a huge sum.
If you do not declare the interest on an accrual basis, then the entire interest earned (difference between the amount deposited and the maturity value) would accumulate in the year of maturity. You could then claim it under Section 80C, but it would be a huge amount and would be taxable at the current applicable tax rate.
Hope u r convinced..
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