Circular No. 409

455. Interest on cumulative deposit schemes of private sector undertakings - Whether should be taxed on accrual basis annually

What this is

Circular No. 409 was issued by the Central Board of Direct Taxes on 12 February 1985. Its subject is 455. Interest on cumulative deposit schemes of private sector undertakings - Whether should be taxed on accrual basis annually.

What it does

Settles that interest on cumulative deposit schemes of private sector undertakings is to be taxed on accrual basis annually, and not on receipt basis in the year the accumulated interest is finally paid out. It also directs the private sector undertakings to intimate individual depositors of the interest accrued so that they can disclose it in their returns.

Why it was issued

The Board had before it the question whether such interest was taxable each year as it accrued or only in the year of receipt of the total interest.

Who it reaches

Individual depositors in cumulative deposit schemes of private sector companies
Private sector undertakings running such schemes
Assessing Officers taxing accrued but unpaid deposit interest

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

455. Interest on cumulative deposit schemes of private sector undertakings - Whether should be taxed on accrual basis annually
1. The issue regarding taxability of interest on cumulative deposit schemes of the private sector undertakings has been considered by the Board. The point for consideration is whether interest on cumulative deposit schemes would be taxable on accrual basis for each year during which the deposit is made or on receipt basis in the year of receiving the total interest.
2. The Central Government has decided that interest on cumulative deposit schemes of private sector undertakings should be taxed on accrual basis annually.
3. The private sector undertakings will intimate the individual depositors about the accrued interest so as to enable them to disclose it in their returns of income filed before the income-tax authorities.
Circular : No. 409 [F. No. 178/2/85-IT(A-I)], dated 12-2-1985.

What to watch

The obligation to disclose falls on the depositor each year, whether or not any money has come in.
The circular puts an intimation duty on the undertaking, so a depositor who received no statement still has to return the accrued interest.
It speaks of cumulative deposit schemes of private sector undertakings; it says nothing about public sector or Government schemes.

Where you meet it

In an assessment where accrued interest on a cumulative deposit has not been returned, and in reconciling interest certificates from a company deposit scheme.

← Circular No. 411 · Circular No. 410 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.