I have FDs in 2 different banks. In one bank TDS is deducted for the accrued interest and in another bank no TDS is deducted as interest is less than 40,000. I have a capital gains tax also to be shown in ITR. So, if I do not want to include my FD accrued interest in this year’s ITR, will that be fine? Will I be able to claim TDS credit in next year’s ITR? Also, how do I show in the ITR that I am following the cash method rather than the mercantile method?
Section 145(1) of the Income Tax Act specifies that income must be computed either on a cash or mercantile basis, as per the method regularly employed by the taxpayer for the purpose of computing ‘Profits and Gains from Business and Profession’ and ‘Income from Other Sources’.
How much tax do I have to pay? Calculate now
For most individuals, interest income from FDs is typically reported on an accrual basis, meaning income is recognised when it is earned, not when it is received.
In the given case, the assessee may opt for a cash system of accounting. It Is pertinent to note that there is a checkbox asked to choose the method of accounting opted by the assessee in Part A – Other Information section.
As the assessee is following the cash system of accounting, he is not required to report the interest accrued but not received in the relevant financial year and may provide the same to taxation on a receipt basis.
Further, the TDS credit accrued for the said year may be carried forward by the taxpayer for the purpose of setting off in the year in which such FD interest is provided for tax on a receipt basis. However, it would be advisable to ensure that the method of accounting opted for by the assessee is consistently followed by him for all periods to avoid any litigation with the tax authorities.