If a trust earned accrued interest on deposits but not received in the bank account. Is that interest taxable for the trust? Since that interest not actually received in the bank trust cannot apply it towards objects of the trust.
Interest income is shown on 26AS.
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Charitable trust accrued interest exemption.
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Quick Summary
Accrued interest is not exempted
Then it is taxable for the trust during the year of accrual ? Or taxable when the interest actually received & does not apply towards objects of the trust ?
Taxable as accrued, if the trust follows the mercantile system:
• Trusts must maintain accounts on the accrual basis (Rule 17AA from AY 2023-24 requires books, and many follow mercantile). Accrued interest on FDs is income of the year in which it accrues.
• It's not "taxable" if applied: total income (including accrued interest) must be 85% applied for objects in the year, or accumulated under Sec 11(2) (Form 10) or Explanation 1 (for income not received during the year, it can be applied in the year of receipt or the next year, by option in Form 9A).
• Explanation 1 to Sec 11(1): where income (like accrued interest) isn't received during the year, the trust can opt (Form 9A) to apply it in the year of receipt or the following year.
• So it's part of income but needn't be taxable, through Form 9A or 10 options.
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