Can you please clarify if and why we need to include the “accrued” interest from bank deposits in our tax returns under Schedule OS? I have the following concerns:
1. This is money which is not credited to my account in this FY. Why should I declare it at all?
2. I’m not sure if the bank adjusts this “accrued” income for “paid” interest in the following FY. If they don’t, will I not be charged tax twice for the same income?
3. Finally the ONLY document which displays this break-up of “paid interest” and “accrued interest” is the interest certificate provided by banks at the end of FY. Banks pay TDS on total of paid plus accrued interest. Form 26AS, AIS and TIS show the total of “paid” and “accrued” interest as income. Thus the assessing officer will be justified in issuing a notice.
Will it be okay if I choose to NOT disclose this accrued interest under Schedule OS and disclose it under Schedule EI in order to avoid any charge of non-disclosure?
Srishyla MV
An individual has the option to use either the receipt or accrual method of accounting for bank interest, as this is taxable under the head ‘Income from other Sources’.
You may choose to report interest income on a receipt basis or an accrual basis. However, it is generally advisable to use the accrual method, as it allows you to claim the corresponding TDS credit in the same year.
You may note that if interest income is accrued in a previous year and has already been taxed, it should not be taxed again in the year when it is received. Claiming TDS for interest income in a different year than when it appears in Form 26AS can be cumbersome, so reporting interest income on an accrual basis is often more practical.
Additionally, interest income cannot be shown as exempt since it must be reported either in the year when it accrues or the year it is received.
The author is a practising Chartered Accountant
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