Fd cash accouting method

Tax queries 509 views 2 replies

meabhijit

Project Manager

172 Points Posted on 23 January 2014

Hi,

I am a salaried individual and request your expert opinon for few questions.

1. I have been following accrued accounting method (mercantile) for Income from other sources like FD till date.
I want to shift to cash accounting method from this financial year and in future.
What documentation should I keep handy to indicate that I have changed the accounting method?

2. Assume I have a cummulative interest FD (ie. payable at maturity) which matures in Jan 2014.
I reinvest the entire amount(principal + interest) to create new FD with the same bank.
In the above case, can i treat the interest as "receipt" basis so that I can tax the entire interest amount when the new FD matures?

3. In case of cash accounting method, do I need to pay advance tax as applicable. My understanding is NO since the interest is taxable on actual receipt basis.

4. In there any timeframe or conditions which I need to satisfy to back to merchantile method in future?

Thanks in advance.

Replies (2)

sarath

82 Points Posted on 24 January 2014

But practically ,, you will face problems,, Because,, Though you change to receipt basis, Bank will continue to deduct TDS on acrual basis & they will show income against your pan.

Since you dont show these, you will receive notice from IT. Then you need explanation for all these.. Practically all these are headache.

Better follow present accrual method only,, So that your income tax return will match with the Form 26AS.

meabhijit

Project Manager

172 Points Posted on 24 January 2014

Originally posted by : sarath

Though section 145A of Income Tax https://www.exploreincometax.com/Indian-Income-tax-Act-1961/Section-145A ,, Gives flexibility to choose Method of accounting for "Other sources",, either Cash Or mercantile basis.

But practically ,, you will face problems,, Because,, Though you change to receipt basis, Bank will continue to deduct TDS on acrual basis & they will show income against your pan.

Since you dont show these, you will receive notice from IT. Then you need explanation for all these.. Practically all these are headache.

Better follow present accrual method only,, So that your income tax return will match with the Form 26AS.

Thanks Sarath.

I understand your view and agree. Can you post your views for the questions related to cash account as well. One reason being for corporate FDs there is a risk of default and so accrual interest may not be a good idea.

Thanks.