Change of accounting method..tax treatment??

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Querist : Anonymous

Querist : Anonymous (Querist)

22 August 2011 i am salaried individual(with some interest income) and was following accrual method of accounting till now...this year i wish to switch over to recipt basis of accounting.How will it impact my interst earned on FD's, which were recorded on accrual basis till last year,that are still not matured..?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)
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22 August 2011 AS per my opinion in your case there is no use the change the accounting policy because your are salaried employee and according to the incometax act the salary income is taxable on the basis of receipt or accrual whichever is earlier so changing of accounting policy not applicable to the salary and not effects the salary income. For other heads of income if u want to change the accounting policy the effect should give from that year only and didn't effect the yearlier years assessed income however the auditor has to report in his report the changes of the accounting policy and the effect of income from that change. In your case u want to change u r accounting policy from accrual to cash basis the salary however should be assesse according to the above explanation. For the FD's as follows:
From this year u need not to offer income from interest if the FDs not matured during the year and u should offer the different of interest income actually received at the time of matured and already offered to the incometax till the last year on accrual basis in which year the FDs are matured. For example:
If you received total interest on FDs Rs.50000 in Financial Year 2012-13 at the time of their maturity and you already offered interest income for tax purpose is Rs.35000 on accrual basis upto the Financial Year 2010-11(A.Y.2011-12). then you has to offer interest income of Rs.15000 for tax purpose for the assement of financial year 2012-13(A.Y.2013-14) Only and need not to offer any income for F.Y.2011-12.
OM SAI SRI SAI JAI JAI SAI

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Querist : Anonymous

Querist : Anonymous (Querist)

22 August 2011 Yeah!, although i am salaried but i will be reitirng this month..so i will be left with only interest income and this year i will be getting some retirment money which will increase my tax liablity but switching to cash basis from accrual basis will reduce my tax liablity..for this year and will be benefited by lower taxability in future years..
but i have been told that lets say..i made fd in FY 08-09 for 5 yrs,as in my case,i have taken interst for FY 08-09 & 09-10 on accrual basis ..now from FY 10-11 onwards i wish to take it on receipt basis that is interst of remaining period ,i.e. here 3 years, i will take in FY 12-13 i.e. year of maturity..but i have been told that doing will be wrong..as income tax act doesn't allow doing so and i will have give a retrospective effect to such FD's..
pls suggest!