Accrued interest

I THINK WHEN YOU SHOW AS INCOME THT TIME ONLY U CN AVAIL THE CREDIT,U CAN GO THROUGH THE CIRCULAR WHICH I ANSWERED FOR PREVIOUS QUESTION..SO I THINK IN THIS QUESTION IN THE 5TH YEAR ONLY U CN CLAIM THE CREDIT

Thanks Sripal for your reply.

I have perused Circular 5/2001, dated 02/03/2001 and find that prima facie it relates specifically to TDS under the provisions of section 194I of the Act on Advance Rent pertaining to more than one financial year. The same is well suited for my other query.

In the instant case interest income is accruing every year but the same is offerred for tax at time of maturity, on account of cash system of accounting.

In view of the above specific mention of sec. 194I in the said circular the same cannot be made applicable to sec.194A.

Kindly advice suitably.

TDS can be claimed only when the corresponding income is offered for taxation during that year.It would be prudent to follow the accrual system in relation to the said F.D. and offer the yearly income for taxation and also claim credit for the TDS against it.In case the entire accrued income is offered for taxation in the 5th year and TDS credit of previous years is claimed aginst the same,it could lead to unwanted headaches in case the Return is taken up for scrutiny assessment.

Originally posted by : Rachit
	Thanks Sripal for your reply. I have perused Circular 5/2001, dated 02/03/2001 and find that prima facie it relates specifically to TDS under the provisions of section 194I of the Act on Advance Rent pertaining to more than one financial year. The same is well suited for my other query. In the instant case interest income is accruing every year but the same is offerred for tax at time of maturity, on account of cash system of accounting. In view of the above specific mention of sec. 194I in the said circular the same cannot be made applicable to sec.194A. Kindly advice suitably.

As per one of income tax rule tds can be claimed in the year it is offered for taxation. this rule is applicable generally not for 194 I only.

Cash basis of accounting could be followed for your business transactions and since income from FD is mostly income from other sources the same can be accrued in the year in which TDS has been deducted as the same would also match the form 26AS credit with Assessment year.

Actually, at present, the assessee has income from salary & interest for which he maintains cash system of accounting..  Assuming that after 5-years the assesseee shall be having income only from interest.

Respected Sir, According to me you have following options for given example:

FD Rs. 5,00,000. Interest 50,000 per anum. TDS Rs 5,000 per annum for 5 years.

Option 1: Accounted on accrual basis: Income Rs 50,000, TDS claim Rs. 5,000.

Option 2: Accounted on receipt basis: (Since Rs. 5,000/- is received in form of TDS)

Income Rs. 5,000. TDS claim for the year Rs 5,000 per annum.

Last year Remaining receipt as Taxable Income. TDS not claimed till last will be Tds claim for that particular year.

I of all is deducting TDS on accrued interest correct.....? !!! 

Please give legal provisions.

                     I like all the masters suggetions, but in my opinion Balaji Knowledge Seeker is right. Whatever accounting system you opt, you should always credit the interest amount only on accrual basis, if you think it is wrong method then what will you do when your TDS deducted on interest. So i will go with balaji.