21 December 2014
As per section 145 of Income tax Act, 1961. Income from other sources as well as Income from Business on profession are taxable either on cash basis or accrual basis of accounting which is regularly adopted by Assessee.
Further, as per section 198 of said act TDS deducted shall be treated as income deemed to be recieved.
Therefore, you don't need to worry it is your choice how you would like to treat other than TDS amount
And hence, Mr Rupesh and Sanjay need to corrected.
The advise given is not incorrect as is evident from your reply itself. Yes you can take it in cash basis but accrual basis is best and easier.
Now Kumar Mukesh Ji...Based on your answer please throw light on my question:
Suppose My salary income is Rs 800000
I have a 8 years FD of Rs 1200000/- from which my Interest income is Rs 100000/- per year and TDS amount deducted is Rs 10000/-. Entire amount is payable at maturity.
21 December 2014
As suggested the required entries in Books are as under:
At the end of Each Years TDS Receivable on FD Interest (Asset)Dr To Interest Income on FD (Income) (Being interest Income on FD upto the Amount of TDS deducted)
At the at time of Maturity Bank a/c Dr TDS Receivable on FD Interest (Asset)Dr To Interest Income on FD To FDs (Being interest Income and amount received on maturity of FD)
21 December 2014
Dear Tushar Before agreeing atleast see the journal entry suggested by Shri Kumar Mukesh.
At the end of Each Years:
TDS Receivable on FD Interest (Asset)Dr To Interest Income on FD (Income) (Being interest Income on FD upto the Amount of TDS deducted)
Is this correct. Interest is Rs 100. TDS Rs 10.
You debited TDS receivable (which is Rs 10)and Credited Interest Income on FD ( which is Rs 100) so where is balance Rs 90?
Entry will be
Fixed Deposit A/c Dr Rs 90 TDS Receivable A/c Dr Rs 10
To Interest on FD A/c Rs 100
Yes this is correct entry. But dear this entry was under accrual method suggested by me. Not for cash basis. In cash basis you dont credit Interest on FD till your receive it upon maturity. When you are crediting Interest on FD you are including it in your Income.
Accrual basis is suggested so that you can take the interest in your income and claim TDS in the same year in which TDS is deducted.
21 December 2014
At the at time of Maturity Bank a/c Dr TDS Receivable on FD Interest (Asset) To Interest Income on FD (Being interest Income and amount received on maturity of FD)
Now coming to second entry suggested by Shri Kumar Mukesh
Bank A/c Dr
To TDS receivable
Now what is that?
Will bank pay you TDS.
Entry will be
Bank A/c Dr...
To Fixed Deposit A/c.
(All amount credited to FD account after deduction of TDS will be paid by bank.)
21 December 2014
Sir now let me explain. Suppose we have FD of Rs. 1,00,000/- for 5 years and have maturity value of Rs. 1,30,000/- now interest of Rs. 30,000/- or Rs. 6,000/- is credited each year. therefore TDS of rs. 600/- is deducted per year. (Don't go with TDS threshold limit it is only assumption) As per My earlier suggestion and as per section 145 and 198 of income tax act Entry at the end of each year will be (upto 4 years ) TDS on FD Dr. 600/- to Interest on FDs 600/-
at the the 5th year entry will be (Maturity)
Bank A/c dr. 1,27,000 TDS on FD Dr. 600/- to Interest on FDs 27,600/- To FD 1,00,000/- (Being amount received on maturity)
Now for first 4 years Interest income will be 600*4 = 2400 For at the time of Maturity Interest income will be 27600 (30,000-2,400)
if you still have any doubt about that I am not able to respond
21 December 2014
In your 2nd reply in 2nd journal entry you did not include FD A/c Cr...so that stands corrected now.
In the 2nd journal suggested above by you
Bank A/c dr. 1,27,000 TDS on FD Dr. 600/ to Interest on FDs 1,27,600/ To FD 1,00,000/ (Being amount received on maturity)
Please check this entry again..Dr & Cr not matching.
Interest on FD credited by Rs 127600/-
it should be Rs 27600/- so again you should correct yourself.
I am not arguing that cash basis is not possible. Since the act allows both cash and accrual basis but for ease of accounting accrual basis is suggested.
22 December 2014
Thanks I have corrected my mistakes
but you now satisfied how to make cash basis accounting.
Agree with your view accrual is most preferable, but tax planning is also prefential if you suggesting accrual in the time when assessee already has tax liability in higher tax slab in intiial year.
22 December 2014
In cash basis, the extra burden falls on maturity of FD. In accrual basis tax burden is uniform over the period.
Kumar Mukesh Ji I knew the cash basis entry otherwise i could not have corrected you. Many people dont know cash basis entry (or make the mistake of passing the entry in the year of maturity) so was just checking with you. And you will acknowledge the fact that accrual basis entry will be easier.
Now its upto person asking the question to plan it himself.
Thank you Kumar Mukesh Ji for healthy discussion.
As far as Tushar is concerned it would have been very nice had he pointed out the mistake which I pointed out rather than just agreeing with Shri Kuamr Muskesh.
22 December 2014
Dear Tushar stop using the word defaming. I just said that before agreeing you should read all the replies carefully. You should have pointed out the mistakes in Journal rather than simply agreeing.
I also had an healthy argument with Kumar Mukesh Ji and he took it in the right spirit. My only request to you again is try to add value with each of your reply rather than just agreeing. I say this not only to you but also to myself everyday. Quantity does not matter quality matters.
CAclubindia
