Personal Finance

Tax query: What’s the taxability of interest on FD credited by a co-operative bank?

Sudhakar Sethuraman | Updated on January 10, 2021

This is with reference to the reply given ( published on November 16, 2020) to a query raised by H S Murlidhar. The query was regarding taxability of interest on FD credited by a co-operative bank, which is not allowed to be withdrawn due to restrictions imposed by the RBI, following an alleged fraud at the bank. Under Income-Tax Act, an individual is allowed to follow cash or mercantile method to account for his income. Hence, I think, , he may account for the FD interest as and when he is permitted to withdraw the same, from his account. Accordingly, he can postpone accounting of FD interest credited to his account till he is allowed to withdraw, and pay tax during the year of withdrawal instead of in the year of credit to his account. Otherwise, he is compelled to pay tax without actual receipt of interest. Kindly advise if it is right to do so.

Uday Kajaria

As per Section 145(1) of the Act, 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.

In mercantile system of accounting, revenue is recorded when it is accrued or due and in cash system of accounting, revenue is recorded when there is actual inflow of cash. Cash implies cash in hand and cash at bank.

In the earlier edition, the facts are that interest and principal amount are credited to the individual’s savings bank a/c. Accordingly, credit of FD interest in bank account implies that the account has earned the interest and there is an inflow of cash in the bank account and therefore taxable under the Act.


If the bank withholds the taxes at the time of crediting the interest income in your bank account, said income is required to be offered to tax and corresponding TDS is allowed to be claimed while filing the tax return in India.

The writer is Partner, Deloitte India. Send your queries to

Published on January 09, 2021

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