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TDS Deduction for Interest Payable

As per section 194A of the Income Tax Act, TDS has to be deducted on interest paid towards overdue amounts or on loans taken from parties.

When transaction is recorded for payment or booking of the interest (expense) without deducting TDS, a separate transaction is recorded to deduct TDS for this interest amount. However, the transaction recorded for TDS deduction should be linked to the transaction recorded for interest amount. Tally.ERP enables you to link these transactions by flagging the interest paid transaction as an exception.

Additionally, you can use the voucher class feature in Tally.ERP 9 to help you automatically calculate the interest amount and the TDS amount on the interest.

To deducts TDS on interest amount

1. Enable interest calculation: F11 > F1: Accounting Features > Activate interest calculation? > Yes .

2. Enable credit note/debit note voucher types: F11 > F1: Accounting Features > Use debit and credit notes? > Yes .

3. Create a credit note voucher class for enabling automatic calculation of interest in the voucher:

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

Enable the option Use Class for Interest Accounting?

4. Create the party master and enable the Activate interest calculation? option in the party master. PAN details are mandatory for TDS transactions.

Enable the options Calculate Interest Transaction-by-Transaction and Override Parameters for each Transaction?

5. Create the Nature of payment : Gateway of Tally > Accounts Info. > Statutory Info. > TDS Nature of Payments > Create .

6. Create TDS duty ledger and TDS expense ledger and select the same Nature of payment in both ledger masters:

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

7. Create a receipt/journal voucher to record the payment from the party, or to record the receipt of loan from the party:

Gateway of Tally > Accounting Vouchers > F6: Receipt .

8. Create a credit note using the voucher class that was created to account for the interest payable.

9. Resolve the exceptions of the credit note transaction in the TDS Form report:

o Go to Form 26Q report > Uncertain Transactions .

The credit note will appear under No link is available in booking and booking with deduction voucher .

o Click F3: Link All to clear the exceptions.

10. Create a TDS deduction journal voucher. Link the TDS deduction transaction to the credit note using the TDS reference generated while resolving the exception:

Go to Gateway of Tally > Accounting Vouchers > F7: Journal > Ctrl + P: TDS Deductions .

11. Create a payment voucher to record payments made to the party. You can record payments of only the interest amount or both the principal and the interest amount:

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