Filing Income Tax Returns (ITR) often becomes tricky when certain income sources reflect in the Annual Information Statement (AIS) but are not actually credited to a taxpayer’s bank account. This situation leaves many individuals uncertain—should they pay tax on such income or wait until it is received? A recent case highlights this issue involving the interest from National Savings Certificates (NSC).
Ravi Sharma, a retired pensioner, invested in NSCs to claim tax rebates. While his past NSC income was reflected under "income from other sources" in AIS, this year the accrued annual interest appeared in the statement but was not deposited into his bank account. This raised the common question: Is tax payable on income that has not yet been received?
To resolve this, Moneycontrol consulted tax expert Balwant Jain, who explained how NSC interest is treated under income tax rules.
Under Section 285BA of the Income Tax Act, banks, post offices, and other financial institutions are required to report specified financial transactions to the Income Tax Department. These include:
Purchase or sale of shares and mutual funds
High-value credit card bill payments
Property registrations above a threshold limit
Dividend or interest income
Based on this reporting, all income linked to a taxpayer’s PAN number is consolidated and displayed in their AIS.
In the case of NSC, post offices are responsible for sharing details of interest accrued in the investor’s account. However, reporting practices vary across post offices. Some report accrued interest annually, while others report only at maturity. This explains why interest may appear in AIS even if it has not been credited to the taxpayer’s bank account.
According to Jain, interest earned on NSC is taxable under the head “Income from Other Sources.” Taxpayers have two options to report this income:
Accrual Basis – Report accrued interest every year in your ITR, even if the amount is not received in the bank account.
Receipt Basis – Report the entire interest income in the year of maturity, when the post office credits it to the account.
However, once a taxpayer chooses one method, they must follow it consistently every year. Switching between accrual and receipt basis is not allowed.
In Ravi Sharma’s case, since he has been reporting interest on a receipt basis (when credited), he should continue to follow the same approach. If AIS reflects accrued interest earlier than expected, there is no need to worry. If the Income Tax Department issues a notice, he can clarify that his reporting follows the cash/receipt method.
Consistency is key: Stick to one reporting method (accrual or receipt) for NSC interest every year.
No need to panic over AIS mismatches: Sometimes institutions report differently, but as long as your method is consistent and legally accepted, you are safe.
Documentation matters: Keep proof of your chosen reporting method to explain in case of scrutiny or notice.
Consult experts when in doubt: Tax professionals can help ensure compliance and avoid unnecessary penalties.
If your AIS shows NSC interest that hasn’t yet been credited to your bank account, it doesn’t necessarily mean you need to pay tax on it immediately. What matters is the method you consistently use for reporting. As Jain clarifies, taxpayers like Ravi Sharma who follow the receipt basis can continue doing so without concern. If questioned, simply explain your reporting method to the Income Tax Department.
Disclaimer: The expert opinions mentioned here are personal views. Moneycontrol and this publication do not endorse or promote any specific tax strategy. Taxpayers are advised to consult certified professionals before making financial decisions.
