Notional interest on fd/rd and how to pay tax on it

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 January 2012 Hi,

I am bit confused with Bank FD/RD interest that I earn and when to pay income tax on those interest earned. Let's discuss on an example scenario,

1) I have opened a Bank FD of1,00,000/- for a duration of 2 years at 8% per year on 1 Feb 2009 with annual compounding.

At the end of 1st year on 1st Feb 2010, I would have earned a notional interest of around8,243/- on my above investment which I obviously don't get into my savings account since the FD will mature the next year!

Now when I file my IT return for F.Y. 2009 - 2010 (A.Y. 2010 - 2011) should I declare the above amount of8,243/- as "Income from other sources"? and pay income tax on the amount, Even though I have not received the money into my savings account?

Or should I declare this interest earned along with next year's interest together (Rs 17,165/-) during my IT Filing for the next A.Y. 2011 - 2012, when I actually receive the money into my savings account after the FD matures (around1,17,165/-) after 2nd year on 1st Feb 2011?

Sorry for the long write up, hope I could clarify my confusion.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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10 January 2012 Income is taxable on due basis.

Interest on fixed deposit is taxable on due basis.

Banks are also required to deduct TDS on accrual basis.

So, you have to offer interest for tax on accrual basis and not on receipt basis.

The exact amount of interest can be ascertained from Form 16A or if the income is less than Rs. 10,000/- then an interest certificate can be obtained from the bank.

Message likes : 1 times

Querist : Anonymous

Querist : Anonymous (Querist)

10 January 2012 Hi Siddhartha thanks for the reply. To make it clear that I could correctly intercept what you mentioned, what you are saying is, the first option written in my post is correct while filing my returns.

1st Option:-

"Now when I file my IT return for F.Y. 2009 - 2010 (A.Y. 2010 - 2011) should I declare the above amount of8,243/- as "Income from other sources"? and pay income tax on the amount,"

and that second option from my post is not correct according to IT rules.

2nd Option:-

"Or should I declare this interest earned along with next year's interest together (Rs 17,165/-) during my IT Filing for the next A.Y. 2011 - 2012, when I actually receive the money into my savings account after the FD matures (around1,17,165/-) after 2nd year on 1st Feb 2011?"

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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10 January 2012 Yes. The first option is correct. You will have to declare the accrued interest as your income even though you have not received the same.

Message likes : 1 times

Querist : Anonymous

Querist : Anonymous (Querist)

10 January 2012 Thanks Siddhartha.

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