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Accured interest

kitle (Others) (31 Points)

19 July 2015

I have some FDs in bank (SBI). In the interest certificate bank has provided my the interest which I have received has been divided into two parts:
a) INT PAID : 1000
b) INT ACCURAL : 1000
The interest certificate is for the FY 2014-2015. My question is if the I will have to pay tax on both the INT paid and INT accured (my income is above taxable limts).

Thanks

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15 Replies

CA. Roopali Kadam (Jobs on assignment basis.) (1453 Points)
Replied 20 July 2015

yes, both int paid and accrued is taxable

1 Like

kitle (Others) (31 Points)
Replied 20 July 2015

Could you please explain the diffirence betwen the two.

CA SACHIN (practice) (115 Points)
Replied 20 July 2015

Interest paid amount is the amount which is already paid to you during current year Andd interest accrued amount is intetest due but not paidd by bank in current year In simple word check whether fd is matured in 2014-15 If yes then interest paid amount is interest paid amount is the interest from up to the date of maturity And interest accrued is interest from that date to end of the financial year

kitle (Others) (31 Points)
Replied 20 July 2015

So e.g. Say I had a FD of Rs. 1000 for which Interest Paid is Rs. 10 and accured interest is Rs. 10. Now I pay tax on both as suggested. If I break the FD this year. Bank reduces interest rate and gives me a interest of Rs. 9 on my FD.
So I am paying extra tax of Rs. 1 right.

CA Chandra Prakash (9873059766 Increasing knowledge through sharing) (296 Points)
Replied 20 July 2015

Section 145: method of accounting provides that income chargeable under the head "PGBP" or "OS" shall be compited in accordance with either cash or accrual system of accounting regularly employed by the assessee. Hence, you can consider income only the part of interest received by using cash basis for recognition of income but remembered, u haven't computed ur os income on accrual basis in earlier year and assessee must not be a company.

Rashi Bajaj (CA) (752 Points)
Replied 20 July 2015

Taxable interest = Int paid(CY)+Int accrued(CY)-Int Accrued(PY).

If FD broken during the relevant FY, whatever interest recd during the year-interest accrued in PY is taxable. If amount is negative, you might consider revising last year's return if you have used accrual system of accounting..

CA. Roopali Kadam (Jobs on assignment basis.) (1453 Points)
Replied 20 July 2015

CA Rashi i have a question

The certificate bank gives is interest certificate for the F Y

Do u want to say that interest paid for the FY includes accrued int. of earlier F Y

Your formula is relevant for accounting where we calculate int.

Is it also relevant for taxation where you get ready made certificate from bank FOR THE FY

Thanks in advance

AMEET KIMBAHUNE (Consultant) (87 Points)
Replied 20 July 2015

I agree with Mr Chander' s view where if you follow regular system of accounting cash or mercantile there won't be any inconsistencies. However, in this present era of TDS and 26AS you're always reconciling your income as per cash vs 26as.

hareesha g (ca practice ) (32 Points)
Replied 20 July 2015

Bank already TDs made on FD interest.

Ashok Mahadik (2 Points)
Replied 27 April 2016

When a Bank issues Interest Certificate, interest accrued in a FY is reflected. But in next FY/s when it is actually paid, will the same not be repeated (in the certificate), thus doubling the liability ? Or is it taken care in the certificate ? Pl. advise.

CA. Roopali Kadam (Jobs on assignment basis.) (1453 Points)
Replied 28 April 2016

care is taken in certificate

Vineet (Engineer) (30 Points)
Replied 25 March 2017

Respected Roopali Madam,

Thanks in advance for your advice.

I am feeling a little confused as advice from Madam Rashi Bajaj where formula suggested is -

Taxable interest = Int paid(CY)+Int accrued(CY)-Int Accrued(PY).

Please help me undertand that will the interest certificate from Banks (SBI, SBBJ) not show Interest accrued in previous year int the current year interest paid portion ?

So adding both paid+accrued not lead to double counting in case of

1. FDs getting renewed every year
2. Long term FDs (say 4 years).

So what should be the formula.

thanks in advance.

Vineet (Engineer) (30 Points)
Replied 03 June 2017

Can someone answer my query above?

CA. Roopali Kadam (Jobs on assignment basis.) (1453 Points)
Replied 12 July 2017

the interest certificate issued is for particular year.(say 15-16)

interest accrued in previous year(14-15) and paid in current year(15-16) will not be included in this certificate as it is showing income earned in current year