What is the correct procedure to add interest from fixed deposit in total income? In case the total period of FD is (say) over 3 financial years and interest is deposited at maturity, (not periodically), should one take into account of the entire interest income amount at the end of maturity or should one show interest accrued at the end of each financial year?
Here is a peculiar case: the assessee wanted to consider the interst income at the end of maturity so he did not consider the interest accrued (as income) at the end of first year and the bank also did not deduct TDS. But since form 15G was not submitted by mistake, in the second year, the bank deducted TDS. The assessee became aware of this deduction too late and his return (for the second year) actually does not show this. The problem is at the end of third year, when entire interst is deposted to the saving's account after closing FD, what will be the total income from interest from FD in the third year? If he considers the entire amount interest then second year's interest is taxed twice. And if he considers only the third year's interest then effectively the first year's FD interest income was not taxed which is illegal. What should one do in this situation? Should the AO be consulted or is there any solution in tax rules?
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