@Knjkumar ,
While in my earlier post I was clarifying that
(a) in case of an FD / CD, since the bank is "crediting" the interest amount to the account of the owner, for US tax purposes , you have to recognize the "credited " amount and pay taxes on that income.
(b) This also implies that for FBAR ( form 114 at FinCen.gov ) and for FATCA ( form 8938 along with your yearly return ), the total account values ( i.e. including the credited interest ) must be taken into account.
(c) This does open an issue with respect to your ITR ( Indian Tax return), -- if you do not recognize this credited amount and pay Indian Tax ( there probably is NO TDS at this stage ), you cannot claim Foreign Tax Credit. If you wait to recognize the earned interest at the maturity point, then while there is Foreign Tax, there is/ may be NO Foreign source income. Thus there is a need to harmonize the US and ITR filings / recognition of the earnings AND follow suit for FBAR and FATCA filings.
I would very strongly recommend a critical review of the contractual document for the CD/FD to clarify whether the financial institution will credit earnings yearly/ periodically or ONLY at the end of the contract. The whole issue centers/ revolves on "credited" and when and restrictions thereon.
Does this help or am I clouding the issue more?
Is there more I can do for you ?
pk
