Can paying tax on interest accrued on investments in KVP / NSC / GOI bonds be deferred for a year ie based on receipts? Melwyn D’souza
Interest income is generally assessed under the head “Income from other sources”.There are two general methods of accounting of income or expense. The receipt basis (Cash accounting ) or accrual basis (mercantile system).Section 145 of the I T Act prescribes “method of accounting” to be followed for computation of income . The said provision states as under
145.
(1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
Kisan Vikas Patras were introduced on 1st April, 1988. The Department of Economic Affairs, Ministry of Finance, in its notifications dated 23-3-1988, 16-12-1991, 24-4-1992 and 2-9-1993 had specified the amount payable on these after 2½ years and up to the date of maturity. However, interest and maturity amount during 2½ years had not been provided in these notifications.
2. As interest on these Patras has to be assessed to income-tax on accrual basis, the amount of interest accrued on these Patras during initial 2½ years has also been determined in consultation with the Department of Economic Affairs. The amount of interest accrued on investment in Kisan Vikas Patras by an assessee is to be calculated on the basis of the following table received from the Department of Economic Affairs wherein rate of interest and maturity amount for Rs. 100 denomination of Kisan Vikas Patras are given
Click here for the chart of interest Easy Chart To Compute Accrued Interest on NSC & KVP!
Therefore, barring KVP, you have option to show the interest either on receipt basis or on accrual basis i.e when you get the interest. But remember even that option as per section 145 of the I T Act applies only when you regularly maintain the accounting . That means , it is not allowed that one year you show on accrual basis and in another year you show on receipt basis.
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