TDS on Interest Paid Towards Overdue Payments

As per Section 194A of the Indian Income Tax Act TDS to be deducted on the any payment made as interest towards overdue payments or loans taken from the parties.

Example: On 26-5-2009 ABC Company received a bill from Pheonix Agencies for Rs. 25,00,000 towards Advertising services with a credit period of 20days from the date of receipt of bill. on delay in payment interest @ 12% p.a will be charged.

ABC Company made the payment towards the above bill on 1-7-2009 along with the interest of Rs.13019.18

Step 1: In F11: Features (Accounting Features)

Enable Activate Interest Calculation to Yes
Set use advanced parameters to Yes

Step 2: Alter the Ledger

Go to Gateway of Tally > Accounts Info. > Ledgers > Alter > Select Pheonix Agencies

In the Ledger Alteration screen

Set the option Activate Interest Calculation to Yes to view Interest Parameters screen
In the Interest Parameters screen set the options as shown below

• Press Enter to accept the ledger alteration

Step 3: Create Duty Ledger

Go to Gateway of Tally > Accounts Info. > Ledgers > Create

Enter the Name field enter the Ledger Name e.g. TDS – Interest
In the Under field select Duties & Taxes group
In the Type of Duty /Tax field select TDS from the Types of Duty/Tax list
In the Nature of Payment field select Interest Other Than Interest on Securities

Note: From Rel 4.8 an option to provide Bank Details is provided in the Ledger Master.

Set Inventory values are affected to No
Set Activate Interest Calculation to No
Press Enter to save

Step 4: Create Expense Ledger

In the Name field enter the Ledger Name e.g. Interest Payable
In the Under field select Indirect Expenses group
Set Inventory values are affected to No
Set Activate Interest Calculation to No
Set Is TDS Applicable to Yes
In the Default Nature of Payment field select Interest Other Than Interest on Securities

Press Enter to save.

Step 5: Record a Journal Voucher (to book the expenses)

Go to Gateway of Tally > Accounting Vouchers > F7: Journal

1. Press F2 and change the date to 26-5-2009

2. In Debit field select Advertisement Expenses from the List of Ledger Accounts

3. Enter 25,00,000 in the Amount field.

4. In the TDS Nature of Payment Details accept the default allocation

5. In the Credit field select Phoenix Agencies and press enter to view TDS Details screen

6. In the TDS Details screen

In the Type of Ref field select New Ref
In the Name field Tally.ERP 9 displays the reference number e.g. Jurl /10-1
In the Nature of Payment field select Payment to Contracts (Advertisements Contracts) from the List of Nature of Payments.
In the TDS Duty Ledger field select TDS – Contractors
Set Deduct Now field to Yes to deduct the TDS

Press Enter to accept the TDS Details.
Payable Amount as calculated in the TDS Details screen will be defaulted in the Party’s Amount (Credit) field.
In Bill-wise Details screen
Select New Ref as the Type of Ref
In the Name field enter the Bill name as Bill - 025
In the Due Date or Credit Days field enter the 20 days as the credit days
Accept the default amount allocation and Dr/Cr. By default Tally.ERP 9 displays the Bill amount in the amount field as the credit balance.
In the Interest Parameters screen ensure the options selected are as shown

Select New Ref as the Type of Ref
In the Name field enter the Bill name as Bill - 025
Accept the default amount allocation and Dr/Cr. By default Tally.ERP 9 displays the Bill amount in the amount field as the credit balance.
In Interest parameters screen, enter zero in Rate field

In Credit field select TDS - Contractors ledger TDS amount will be defaulted automatically
Enter Narration, if required.

11. Press Enter to accept.

Step 6: Create Voucher Class for Credit Note Voucher

Go to Gateway of Tally > Accounts Info. > Voucher Types > Alter > Select Credit Note

In the Voucher Type Alteration screen Tab Down to Name of Class field
Enter Interest in the Name of Class field and press enter to view the Voucher Type Class screen
In the Voucher Type Class screen
Set Use Class for Interest Accounting to Yes

Press Enter to save the Voucher Alteration screen

Note: Voucher class in credit note is created to account the interest payable to the party

Step 7: Record a Credit Note (to accounting interest on over due payment)

Set up:

In F11: Features (Accounting Features)

Set Use Debit /Credit Notes to Yes

Go to Gateway of Tally > Accounting Vouchers > Ctrl + F8: Credit Note

In the Change Voucher Type screen, in the Class field select Interest from the Voucher Class List
Press F2 and change the date to 01-7-2009
In the Credit field select Pheonix Agencies from the List of Ledgers to view the Interest Details screen
In the Interest Details screen select Bill – 025 from the List of Interest Bills

In the Credit Amount field Rs. 13019.18 will be displayed automatically.
In the Bill-wise Details screen
In the Type of Ref field select New Ref as the Method of Adjustment
In Name field enter CN/001
Skip Due Date, or Credit Days field
In the Amount field accept the default allocation
In the Interest Parameters screen in rate field define Zero

In the Debit field select Interest Payable ledger to view TDS Details screen
In the TDS Details screen
In Type of Ref field select New Ref as the Method of Adjustment
In the Name field CNote /1-1 will be defaulted as the Reference Number
In the Nature of Payment field select Interest other than Interest on Securities
In the TDS Duty Ledger field select TDS – Interest from the TDS Duty Ledgers list

Enter Narration, if required

Press Enter to save

Step 8: Record a Journal Voucher (to deduct TDS)

Go to Gateway of Tally > Accounting Vouchers > F7: Journal

Press Alt + S or S: TDS Deduction to view TDS Deductions screen
In the TDS Deductions screen
In the Till Date field 01-7-2009 will be defaulted
In Party field select Pheonix Agencies form the List of Ledgers
In Nature of Payment field select Interest Other than Interest on Securities to deduct TDS Interest