TDS on Interest Paid on Loans Taken from parties

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 1-7-2009 ABC Company took a loan of Rs. 15,00,000 from Smart Agencies @ 15% p.a for a period of 1 year on a condition that the Interest to be paid monthly after deducting TDS on Interest.

On 1-8-2009 Interest (after deducting TDS) of Rs. 17198.59 paid for the month of July.

Step 1: In F11: Features (Accounting Features)

• Enable Activate Interest Calculation to Yes

• Set use advanced parameters to Yes

Step 2: Create the Ledger

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

1. In the Name field enter the Ledger Name e.g. Smart Agencies

2. In the Under field select Sundry Creditors group

3. Enter the Default Credit Period, if any

4. Set Activate Interest Calculation to Yes to view Interest Parameters screen

5. In the Interest Parameters screen ensure the options selected are as shown

6. Set Is TDS Deductable to Yes

7. In the Deductee Type screen select Company – Resident from the List of Deductee Types

8. The completed party ledger creation screen is as shown

9. Press Enter to save.

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

Step 3: Create Duty Ledger

Read TDS on Interest Paid Towards Overdue Payments - Step 3: Create Duty Ledger

Step 4: Create Expense Ledger

Read TDS on Interest Paid Towards Overdue Payments - Step 4: Create Expense Ledger

Step 5: Record a Receipt Voucher (to account the receipt of loan amount)

Go to Gateway of Tally > Accounting Vouchers > F6: Receipt

1. Press F2 and change the date to 01-7-2009

2. In Credit field select Smart Agencies from the List of Ledger Accounts

3. Enter 15,00,000 in the Amount field.

4. In the Bill-wise Details screen

5. In the Type of Ref field select New Ref

6. In the Name field enter the Loan -001

7. In the Amount field the amount is defaulted automatically.

8. In the Interest Parameters screen ensure the settings are as shown

5. In the Debit field select Canara Bank

6. Enter Narration, if required.

7. Press Enter to accept.

Step 6: Create Voucher Class for Credit Note Voucher

 Read TDS on Interest Paid Towards Overdue Payments - Step 6: Create Voucher Class for Credit Note Voucher

Step 7: Record a Credit Note (to account interest on loan)

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

1. In the Change Voucher Type screen, in the Class field select Interest from the Voucher Class List

2. Press F2 and change the date to 1-2-2009

3. In the Credit field select Smart Agencies from the List of Ledgers to view the Interest Details screen

4. In the Interest Details screen select Loan - 001 from the List of Interest Bills

5. In the Credit Amount field Rs. 19109.59 will be displayed automatically.

6. In the Bill-wise Details screen

7. In the Type of Ref field select New Ref as the Method of Adjustment

8. In Name field enter CN/002

9. Skip Due Date, or Credit Days field

10. In the Amount field accept the default allocation

11. In the Interest Parameters screen in Rate field define Zero

7. In the Debit field select Interest Payable ledger to view TDS Details screen

8. In the TDS Details screen

9. In Type of Ref field select New Ref as the Method of Adjustment

10. In the Name field CNote /2-1 will be defaulted as the Reference Number

11. In the Nature of Payment field select Interest other than Interest on Securities

12. In the TDS Duty Ledger field select TDS – Interest from the TDS Duty Ledgers list

9. Enter Narration, if required

10. Press Enter to save

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

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

1. Press Alt + S or S: TDS Deduction to view TDS Deductions screen

2. In the TDS Deductions screen

3. In the Till Date field 1-Feb-2009 will be defaulted

4. In Party field select Smart Agencies form the List of Ledgers

5. In Nature of Payment field select Interest Other Than Interest on Securities  to deduct TDS on interest

3. Accept the TDS Deductions to auto-fill the TDS amount with the respective bill details

4. In the Bill-wise Details screen, select the bills as shown

5. In the Type of Ref field select Against Ref

6. In the Name field select CN/002 dated 1-Aug-2009

7. Accept the default Amount allocation

5. Enter Narration, if required.

6. 6. Press Enter to save

Step 9: Record a Payment Voucher (payment of interest)

Go to Gateway of Tally > Accounting Vouchers > F5: Payment

1. Press F2 and change the date to 1-8-2009

2. In the Account field select Canara Bank

3. Under Particulars select  Smart Agencies

4. Enter Rs. 17198.59 in the Amount field

5. In the Bill-wise Details screen

6. In the Type of Ref field select Agst Ref

7. In the Name field select CN/002

8. In the Amount field accept the default bill allocation

6. Enter Narration, if required

7. Press Enter to save