Income Tax News: Understanding Interest Income Reporting in Income Tax Returns for FY 2023-24

Income Tax News: As the financial landscape evolves, so do the nuances of income tax reporting, particularly concerning interest income from various sources. A recent query regarding interest income and the filing of Income Tax Returns (ITR) for the Financial Year (FY) 2023-24 sheds light on a crucial aspect of taxation.

Understanding Interest Income Reporting in Income Tax Returns for FY 2023-24

Traditionally, taxpayers have been accustomed to declaring interest income based on the receipt of funds into their savings bank accounts. However, with the advent of accrued interest on Fixed Deposits (FDs), the scenario has become more intricate.

The interest certificate received from banks now delineates interest in two categories for FY 2023-24: interest credited to the savings account during the fiscal year and accrued interest on FDs not yet matured. This newfound complexity raises the question of which interest category should be disclosed while filing the ITR.

According to income tax laws, taxpayers possess the flexibility to report income either on a receipt basis or an accrual basis, applicable to various sources including interest income. Consistency is key, meaning the chosen method must be upheld consistently across fiscal years.

For those accustomed to reporting interest income based on the credits in their savings accounts

For those accustomed to reporting interest income based on the credits in their savings accounts, the same methodology should be followed for FY 2023-24. Therefore, only interest credited to the savings account should be declared while filing the ITR.

It's crucial to note that while banks may deduct tax on interest income on an accrual basis, adhering to a receipt basis for reporting may result in discrepancies between the declared income and the taxed amount. This misalignment is particularly pertinent for individuals with substantial FD investments.

To mitigate such disparities, individuals with sizable FD investments are advised to consider reporting interest income on an accrual basis. This approach not only ensures a smoother income profile but also eliminates the need to carry forward TDS amounts across fiscal years.

In summary, while the tax treatment of interest income may seem straightforward, evolving financial instruments necessitate a nuanced approach to income tax reporting. By understanding the options available and adhering to consistent practices, taxpayers can navigate the intricacies of interest income reporting with confidence.

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