I had invested in bonds of a listed company with a cumulative interest option. These bonds were redeemed on July 15, 2024. I have received the redemption money of 1 lakh with interest of ₹67,595/-in interest after deducting TDS from ₹7,511/-. I have not shown any interest income related to these bonds in the past. My question is whether the entire amount of ₹75106 (67595+7511) will be included in my income for this year or is there an allowance available for me for the interest I have received over so many years?
Answer: Income must be presented for tax under one of the five types of income specified in the Income Tax Act. Interest income is generally taxable under the heading ‘Income from other sources’. Taxpayers are permitted to present their income based on either of the two methods permitted in respect of income under two categories of income, namely ‘Profits and Gains from Business or Profession’ and ‘Income from Other Sources’.
Taxation of interest income: accrual versus cash basis explained
The first method is the ‘accrual’ method, where you submit the income for tax as and when you become entitled to receive such income. The other is to provide it on a cash basis, with the income presented for tax in the year it is received. Once a particular method is chosen, it must be followed consistently year after year.
Because you have not historically presented interest income on an accrual basis for tax each year, you will need to present the full interest income, including the amount of tax accrued for tax in the year of receipt, i.e. the current year. has been deducted.
While there is a provision under Article 89 for granting compensation in case more than twelve months’ salary is received in one year, either in advance or in arrears, there is no similar provision for granting compensation in case of income such as interest. So you have no choice but to include the entire interest in the current year’s income and pay tax at the rates applicable to you.
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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.
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