Fd interest
Stephen
(Querist) 16 June 2014
This query is : Resolved
Hello Sirs,
I had placed a FD for a 91 day period snapping 2 financial year (i.e 2013-2014 & 2014-20150) with interest payable on maturity which falls in next financial year. The bankers have deducted TDS of the previous financial and they have updated in Trace system. Now my query is why am I liable to show total income of the accrued interest of previous years while the interest is paid only in 2014-2015. Also this unnecessarily increases my taxable income and slab to pay. Please educate me is the a clear directive from CBDT to bankers are there any circular. Also if I have to file tax how my gross FY2013-14 income (minus)the interest amount which is paid in FY2014-15.
Thanking you in advance for your advice and legal taxation solution.
Regards
Stephen
Sanjeev
(Expert) 16 June 2014
Accrual system of accounting is followed and not cash basis so the interest on your deposit for the year has been earned so liable to tax actual payment is not the condition to tds deduction. Ideally you are bound to include the interest earned in your assessable income for the year.
Kumar Doab
(Expert) 16 June 2014
The bank shall issue interest certificate for financial year and accordingly you need to compute your income.
Rajendra K Goyal
(Expert) 17 June 2014
The Bank has to deduct the tax on accrued interest periodically as per provisions. Bank has deducted and deposited the TDS, receive a certificate from the Bank and file return after accounting this accrued interest.
Anirudh
(Expert) 18 June 2014
Dear Mr. Stephen,
I find from your profile that you are a Management Professional. Please indicate whether you are maintaining your books of accounts on 'Mercantile basis' or on 'Cash basis' for the purposes of Income Tax.
After getting the information, I will provide you with the answer to your query.
Stephen
(Querist) 18 June 2014
Dear Anirudh,
Thanks for recognizing my professional profile. Yes I am a program management by profession. I have taken early retirement and an individual tax assess for the last 20+ years. Since my retirement, I had invested in FDs and one particular FD which had placed for 91days spanning 2 financial year and interest payable on maturity. However bankers had deducted tax on accured period between Feb & Mar2013, while the interest is paid on May2014 on maturity. This I was contesting with bankers. Hence wanted clarity from tax experts and also what exactly is the CBDT directive. However I don't want to default anything against the law of the land and Law of my God and Saviour.
Any clarity and if any possibility to excluding the accured interest while filing returns for AY2014-2015 and whether can be accounted during next financial year assessment would be much appreciated.
Thanks
Stephen
Anirudh
(Expert) 18 June 2014
Dear Mr. Stephen,
You have forgotten to answer my specific query - whether you are maintaining your accounts on CASH BASIS or MERCANTILE BASIS.
This information is necessary to provide appropriate answer to your query.
I am not sure whether you are required to get your accounts Audited before submitting your return to the I.T. Authorities.
Please confirm.
Stephen
(Querist) 18 June 2014
Dear Anirudh,
Since I was a working professional and used to get salary based actual payment and likewise whatever FD interest was paid during the FY. I guess is considered as Cash basis and on that basis I had been filing my IT returns. However since I retired couple of years back and all of the FD interest which my bankers provided were on cash basis. This year one of the banker on one of the FD has provided interest on accrual basis which I suppose is mercantile basis. I am not sure how to address this.
Appreciate your asking fundamental information and making me aware of this and putting up patience.
Many thanks.
Stephen
Anirudh
(Expert) 19 June 2014
Dear Mr. Stephen,
Pl. appreciate that there are two methods of accounting which an Assessee can follow.
1. Mercantile system: In this method of accounting, all incomes over which the legal right of the assessee has arisen (though not actually received) and similarly all the payments for which the legal liability of the assessee has arisen (though not actually paid) have to be accounted for in the books of accounts and then the income tax has to be calculated.
2. In the cash system, only when the income is actually received (irrespective of to which year the income relates) and payments when actually paid will be accounted for and income tax has to be calculated accordingly.
3. As you will understand, if it was mercantile system, though in your case the bank has credited the interest in the subsequent year, you as assessee know that you have a legal right to receive the interest in the previous year and therefore you are liable to take into account the interest receipt for payment of income tax. Ofcourse, you can take credit of the TDS deducted by the bank, while working out the net tax payable.
4. In the case of Cash Accounting, it is enough if you take the interest income only in the year in which it was actually received.
5. Rule 37BA(3)of income tax rules provide that -
(i) Credit for tax deducted at source and paid to the Central Govt., shall be given for the assessment year for which such income is assessable.
(ii) Where tax has been deducted at source and paid to the Central Govt. and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.
In your case, if I understand correctly, you are not willing to include the interest income which you actually received in the financial year 2014-15 in the income of the financial year 2013-14.
Therefore, you can take the benefit of the TDS Certificate issued by the bank in the Assessment Year 2015-16, which you will take the interest income into account in the financial year 2014-15. (This is as per Rule 37(3)(ii).
Stephen
(Querist) 19 June 2014
Dear Anirudh,
Many thanks for educating me with your detail explanation of Cash and Mercantile basis. Also understanding my predicament and helping with a solution you mentioned in last paragraph, which I shall take into consideration while filing returns.
Appreciate your patience and support on this.
Regards
Stephen
T. Kalaiselvan, Advocate
(Expert) 20 June 2014
I appreciate the very good explanation of Expert Mr.Anirudh to the author's query elucidating the important issues involved in it. Wonderful service.
Dr J C Vashista
(Expert) 20 June 2014
I appreciate the expert guidence and advise of Mr. Anirudh, very well explained.
Kumar Doab
(Expert) 20 June 2014
I too appreciate the precise illustration by Mr. Anirudh.
