11 April 2011
Does Accrued Interest Income have to be included in the Taxable Income for the year ? Are there any ways by which it can be shown in the year when it is actually realized ?
For e.g. Say I have a Cumulative Fixed Deposit in a Bank for Rs. 1,00,000 which I opened on 1-4-2010 & which is maturing on 31-3-2012 & which pays interest at the rate 10% p.a. . Interest for the first year will be Rs. 10,000/- & for the second year , it will be Rs. 11,000/- . (10 % on 1,10,000 ) .
Now , if Income Tax has to be paid on accrued income , then I shall have to pay Rs. 2000/- tax at end of first year & Rs. 2,200/- tax for the second year income (assuming I pay tax @ 20 % ) . However , if I have an option to pay the entire tax when the F.D. matures , then I can pay Rs. 4,200 straightaway after the F.D. matures on 31-3-2012 . I would prefer paying the Income Tax when the F.D. matures .
Is there anyway by which one can pay Income Tax on Interest Income this way ?
11 April 2011
Interest on FD,to be offered under "income from other sources", can be declared on "cash basis" as per section 145 (1) of the Income tax Act,1961 meaning there by FD interest can be offered in the year of maturity if the assesse so opts provided that method has to be regularly followed.
20 April 2011
I agree to Mr. Warrier but will like to add here that Bank shall surely(if the interest exceeds amount specified in sec 194A )deduct the TDS and practically it shall be difficult for you to claim the same in the third year.
So my advice shall be to show the income and claim TDS in the year of accrual.
CAclubindia
