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Income from other sources

Omkar Shirsat (CA Final Student) (72 Points)

24 March 2014

Dear All,

I would like to seek your advice on a few incidences, where i wish to know the tax implications:

a) An assessee holds FD certificates. On maturity, if such FD is renewed/reinvested into another FD, will the maturity value of original FD be taxable in the F.Y. of maturity?

b) If interest on FD is reinvested each year, instead of having a credit to the FD holder's savings bank account, will it be taxable on accrual basis, since the assessee did not receive such interest in that F.Y.?

c) If an assessee holds Post office account, pension fund, and on their maturity, converts the maturity value into an FD in a bank, will the maturity value of pension fund and post office account be taxable in the year of maturity?

Thanks in advance. Please feel free to communicate in case the query is ambiguous.

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1) If the assessee has disclosed the FD certificates he holds (Made Fds out of taxed income), then on maturity, if such FD is renewed/reinvested/encashed the maturity value of original FD be NOT taxable at all. Only the interest earned on the FDs will be taxable.
However, If the assessee had earned some income earlier and not offered the same to tax and made FD out of it, that Fd will be undisclosed income and taxed accordingly.

2)Interest on Fds will be taxale on cas/ accrual basis as per the accounting method regularly followed by the assessee. It is wiser to use accrual method as the interest earned is distributed over the years.

3) if any investment matures and is converted into other investment, there is no tax on the principal amount. In case of post office, pension fund only the income(IF taxable) is taxed, not the maturity amount

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