Tds issue
This query is : Resolved
04 November 2011
Facts:
1)An amount has been invested in Fixed Deposit with the Bank for a period of 5-years. The Bank deducts TDS on the amount of interest ACCRUED quarterly. Quarterly TDS certificates too are issued by the bank in respect of this tax deduction.
2)This entire amount of INTEREST ACCRUED every year BUT NOT RECEIVED, would be shown as an INCOME in the 5th year, i.e. on actual receipt of Interest income.
3)The assessee maintains books on cash system.
Query:
1)Can the assessee claim every year the amount of Tax deducted (TDS) by the bank annually? OR
2)Can the assessee claim the entire amount of tax deducted annually by the bank, in the 5th year, i.e. in the year when the amount of Interest is actually received and shown in the return of income?
1)An amount has been invested in Fixed Deposit with the Bank for a period of 5-years. The Bank deducts TDS on the amount of interest ACCRUED quarterly. Quarterly TDS certificates too are issued by the bank in respect of this tax deduction.
2)This entire amount of INTEREST ACCRUED every year BUT NOT RECEIVED, would be shown as an INCOME in the 5th year, i.e. on actual receipt of Interest income.
3)The assessee maintains books on cash system.
Query:
1)Can the assessee claim every year the amount of Tax deducted (TDS) by the bank annually? OR
2)Can the assessee claim the entire amount of tax deducted annually by the bank, in the 5th year, i.e. in the year when the amount of Interest is actually received and shown in the return of income?
06 November 2011
Reply 1.
Assessee can claim the amount annually by showing the amount of TDS as Income as well.
Reply -2
This can be done by not claiming the amount
of TDS in Schedule TDS 2 of the ITR.
.
But practical difficulty may arise while claiming cumulatively in the last year (from the department side).
In case the TDS claim has not been mentioned in the respective years return it is almost impossible to get the refund.
Assessee can claim the amount annually by showing the amount of TDS as Income as well.
Reply -2
This can be done by not claiming the amount
of TDS in Schedule TDS 2 of the ITR.
.
But practical difficulty may arise while claiming cumulatively in the last year (from the department side).
In case the TDS claim has not been mentioned in the respective years return it is almost impossible to get the refund.
07 November 2011
agree with above expert.
07 November 2011
1)Can the assessee claim every year the amount of Tax deducted (TDS) by the bank annually WITHOUT taking into account the corresponding INTEREST INCOME? This income would be shown in total in the year of its actual receipt since the assessee maintains books on cash system.
07 November 2011
The TDS amount has to be taken as Income as it has been received. At maturity the amount receivable will be shorter by the amount of TDS.
Message likes :
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07 November 2011
Request you to provide requisite Rule/circular number to that effect.
08 November 2011
Shri. Bafnaji
Thanks for your reply. Please advice whether legally it is correct to show the Interest accrued income in the 5th year i.e. in the year of actual receipt of interest(as the assessee is maintaining books on CASH SYSTEM OF ACCOUNTING. Are there any chances of the I.Tax department, invoking concealment of income provision against the assessee. What precautions should be taken to safeguard against it?
Thanks for your reply. Please advice whether legally it is correct to show the Interest accrued income in the 5th year i.e. in the year of actual receipt of interest(as the assessee is maintaining books on CASH SYSTEM OF ACCOUNTING. Are there any chances of the I.Tax department, invoking concealment of income provision against the assessee. What precautions should be taken to safeguard against it?
27 July 2025
Here’s a detailed explanation on TDS and interest income recognition in your scenario, considering cash system accounting and tax laws:
---
### Facts Recap:
* Interest on a fixed deposit (FD) is **accrued quarterly but not received** till maturity (5th year).
* TDS is deducted by the bank **quarterly on accrued interest**.
* The assessee uses **cash system of accounting**, so income is recorded on receipt basis (i.e., in 5th year when interest is actually received).
* The question is:
1. Can the assessee claim TDS refund each year even though income is not recorded yearly?
2. Or should the entire TDS be claimed only in the 5th year along with the interest income?
---
### Tax Treatment & TDS Claim - What’s Correct?
1. **Income Recognition**
Since the assessee uses **cash system of accounting**, **interest income should be recognized only when actually received** (i.e., in the 5th year). This is consistent with accounting principles and allowed under Income Tax Act (Section 145(1)).
2. **Claiming TDS Credit**
TDS credit is generally available in the year in which the TDS is deducted and reflected in Form 26AS (tax credit statement).
* If you claim TDS credit in earlier years without showing the corresponding income, the department may question the mismatch.
* If you **don’t show income yearly but claim TDS credit yearly**, it may raise a red flag.
* Conversely, if you **show income only in 5th year but claim TDS only then**, practically it may be difficult to get TDS credit/refund for earlier years as those TDS deductions happened in previous years.
---
### Practical and Legal Advice
* **Best Practice:**
To **avoid mismatch and complications**, the assessee should ideally:
* Show the **accrued interest income each year on a notional basis** (even if not received) — this means accounting for the accrued interest as income each year, consistent with TDS deducted and reported.
* Claim the TDS credit every year accordingly.
* **If sticking to cash system:**
* Show interest income only in 5th year (when received).
* Claim TDS credit/refund in the same year.
* But be prepared for practical difficulties in getting credit for TDS deducted in previous years.
* **Risk of concealment allegation?**
If you do not show interest income when TDS is deducted but claim TDS credit/refund for earlier years, the department may allege concealment of income or mismatch.
So, **ensure consistency between income shown and TDS claimed.**
---
### Relevant Rules/Sections
* **Section 145(1):** Method of accounting (cash or mercantile) should be consistently followed.
* **CBDT Circular No. 1/2013** on treatment of accrued interest income and TDS (though not specifically for cash system, highlights need for consistency).
* **Section 199:** TDS credit mechanism through Form 26AS.
---
### Summary
| Situation | Recommended Action | Risk/Comments |
| ------------------------------- | --------------------------------------------------------- | ------------------------------------- |
| Claim TDS yearly without income | Not advisable - mismatch may attract scrutiny | Possible concealment allegation |
| Show accrued interest yearly | Consistent, claim TDS yearly | Practically smoother TDS credit |
| Show interest only at maturity | Claim TDS credit only in 5th year; may face refund issues | May delay or complicate refund claims |
---
If the assessee prefers **strict cash basis accounting** (income only on receipt), then they should:
* File returns without claiming TDS refund for earlier years,
* Claim the entire TDS credit/refund only in the year interest is received,
* And be ready to substantiate the accounting method and treatment in case of scrutiny.
---
If you want, I can help draft a representation/letter explaining the accounting treatment to the department or advise on practical steps to claim TDS refund/refund adjustment properly.
---
---
### Facts Recap:
* Interest on a fixed deposit (FD) is **accrued quarterly but not received** till maturity (5th year).
* TDS is deducted by the bank **quarterly on accrued interest**.
* The assessee uses **cash system of accounting**, so income is recorded on receipt basis (i.e., in 5th year when interest is actually received).
* The question is:
1. Can the assessee claim TDS refund each year even though income is not recorded yearly?
2. Or should the entire TDS be claimed only in the 5th year along with the interest income?
---
### Tax Treatment & TDS Claim - What’s Correct?
1. **Income Recognition**
Since the assessee uses **cash system of accounting**, **interest income should be recognized only when actually received** (i.e., in the 5th year). This is consistent with accounting principles and allowed under Income Tax Act (Section 145(1)).
2. **Claiming TDS Credit**
TDS credit is generally available in the year in which the TDS is deducted and reflected in Form 26AS (tax credit statement).
* If you claim TDS credit in earlier years without showing the corresponding income, the department may question the mismatch.
* If you **don’t show income yearly but claim TDS credit yearly**, it may raise a red flag.
* Conversely, if you **show income only in 5th year but claim TDS only then**, practically it may be difficult to get TDS credit/refund for earlier years as those TDS deductions happened in previous years.
---
### Practical and Legal Advice
* **Best Practice:**
To **avoid mismatch and complications**, the assessee should ideally:
* Show the **accrued interest income each year on a notional basis** (even if not received) — this means accounting for the accrued interest as income each year, consistent with TDS deducted and reported.
* Claim the TDS credit every year accordingly.
* **If sticking to cash system:**
* Show interest income only in 5th year (when received).
* Claim TDS credit/refund in the same year.
* But be prepared for practical difficulties in getting credit for TDS deducted in previous years.
* **Risk of concealment allegation?**
If you do not show interest income when TDS is deducted but claim TDS credit/refund for earlier years, the department may allege concealment of income or mismatch.
So, **ensure consistency between income shown and TDS claimed.**
---
### Relevant Rules/Sections
* **Section 145(1):** Method of accounting (cash or mercantile) should be consistently followed.
* **CBDT Circular No. 1/2013** on treatment of accrued interest income and TDS (though not specifically for cash system, highlights need for consistency).
* **Section 199:** TDS credit mechanism through Form 26AS.
---
### Summary
| Situation | Recommended Action | Risk/Comments |
| ------------------------------- | --------------------------------------------------------- | ------------------------------------- |
| Claim TDS yearly without income | Not advisable - mismatch may attract scrutiny | Possible concealment allegation |
| Show accrued interest yearly | Consistent, claim TDS yearly | Practically smoother TDS credit |
| Show interest only at maturity | Claim TDS credit only in 5th year; may face refund issues | May delay or complicate refund claims |
---
If the assessee prefers **strict cash basis accounting** (income only on receipt), then they should:
* File returns without claiming TDS refund for earlier years,
* Claim the entire TDS credit/refund only in the year interest is received,
* And be ready to substantiate the accounting method and treatment in case of scrutiny.
---
If you want, I can help draft a representation/letter explaining the accounting treatment to the department or advise on practical steps to claim TDS refund/refund adjustment properly.
---
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