What is Accrued Income?
Accrued Income (also called Accrued Revenue or Outstanding Income) refers to income that has been earned during an accounting period but has not yet been received in cash or formally billed to the customer. Under the accrual basis of accounting, such income must be recognised in the period it is earned — not when payment is received.
On the balance sheet, accrued income is shown as a current asset under "Other Current Assets" or "Receivables," as the business has a right to receive this amount.
Common Examples of Accrued Income
- Interest accrued on Fixed Deposits: A bank FD earns 7% interest per annum. If ₹10 lakh is invested, ₹70,000 interest accrues over 12 months — it must be recorded monthly even if the bank pays it only at maturity.
- Rent receivable not yet collected: A property owner earns rent for March 2025 but the tenant pays in April 2025. The March rent is accrued income in FY 2024-25.
- Commission earned but not billed: A sales agent earns a commission of ₹50,000 in March for closing a deal — but the commission is paid by the company in April.
- Professional fees for completed work: A CA completes a tax audit in March 2025 but sends the invoice in April 2025. The fee is accrued income for March.
- Dividends declared but not received
- Interest on loans given to associates or employees
Accounting Treatment
When income is accrued (end of period):
Accrued Income A/c Dr. ₹XX
To [Income / Revenue A/c] Cr. ₹XX
(Being income earned but not yet received)
To [Income / Revenue A/c] Cr. ₹XX
(Being income earned but not yet received)
When cash is actually received:
Bank / Cash A/c Dr. ₹XX
To Accrued Income A/c Cr. ₹XX
(Being realisation of previously accrued income)
To Accrued Income A/c Cr. ₹XX
(Being realisation of previously accrued income)
Tax Implications of Accrued Income
- Under the mercantile (accrual) basis of accounting, accrued income is taxable in the year it is earned — not when received in cash.
- FD Interest: Banks deduct TDS annually on accrued interest at 10% (Section 194A). Individuals must include accrued FD interest in their ITR every year — not just on maturity.
- Section 145: If a taxpayer consistently uses the accrual method, they cannot selectively switch to cash basis for certain income streams.
⚠️ Common Mistake: Many individuals assume FD interest is taxable only at maturity. Under accrual accounting, interest accrued every year is taxable in that year, and TDS is deducted by the bank annually. Failure to declare accrued interest can result in income tax notices.
Advantages of Recognising Accrued Income
- Provides an accurate picture of profitability in each period
- Ensures correct matching of revenues with related expenses
- Gives management a true view of outstanding receivables
- Ensures compliance with Ind AS, Indian GAAP and Income Tax Act requirements
Frequently Asked Questions
Q: What is Accrued Income in simple terms?
Income earned during an accounting period but not yet received or billed. Recognised as a current asset in the balance sheet under accrual accounting. In the Indian context, accrued income is particularly relevant for businesses, individuals and professionals dealing with taxation, financial reporting and regulatory compliance.
Q: Who needs to understand Accrued Income?
Anyone involved in accounting in India — including business owners, salaried employees, Chartered Accountants, company secretaries, financial managers and individual taxpayers — should have a clear understanding of accrued income to make informed decisions and remain compliant with applicable laws.
Q: What are the key regulations governing Accrued Income in India?
Accrued Income in India is primarily governed by the relevant provisions of the Income Tax Act, 1961, the Companies Act, 2013, the GST legislation, FEMA or other applicable statutes depending on the specific context. The Central Board of Direct Taxes (CBDT), Ministry of Corporate Affairs (MCA) and Reserve Bank of India (RBI) periodically issue notifications, circulars and guidelines that further define compliance requirements related to accrued income.
Q: What are the consequences of non-compliance with Accrued Income requirements?
Non-compliance with requirements related to accrued income can attract significant consequences under Indian law, including monetary penalties ranging from fixed amounts to percentages of the transaction value or tax evaded, interest charges, prosecution under applicable statutes, and reputational damage. Engaging a qualified Chartered Accountant ensures that all compliance obligations related to accrued income are met on time.
Q: How can Casela Advisors help with Accrued Income?
Casela Advisors is a leading CA firm based in Mumbai with deep expertise in accounting matters, including accrued income. Our team of qualified Chartered Accountants provides end-to-end advisory, compliance support, return filing, and representation services. We assess your specific situation, identify opportunities, flag risks and ensure full regulatory compliance. Contact us for a free initial consultation.