Interest on tax and late fee

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 February 2018 Dear experts please clarify me that interest on taxes like GST or Income Tax and late fee over filing return late does comes in general expenses of the firm or not? Can we show it as indirect expense in the book as interest incurred on Tax or Late Fee over filing return late or is it of some other nature?

Plz answer
Thanks in advance.

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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08 February 2018 Interest on late payment of TDS is disallowed under section 37(1) of the income tax act.

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Querist : Anonymous

Querist : Anonymous (Querist)

08 February 2018 Then sir in which head such expenses will go?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 Interest on taxes such as GST, Income Tax, and late fees for late filing are generally treated differently from ordinary business expenses. Here's a breakdown of how to handle these expenses:

### Interest on Taxes and Late Fees:

1. **Interest on Income Tax:**
- **Nature:** Interest on income tax is not considered an allowable business expense. It is considered a penalty for non-compliance with tax regulations.
- **Accounting Treatment:** This interest should not be classified as a general expense or indirect expense in the firm's books. Instead, it should be treated as a separate item, often under the head "Interest and Penalties."

2. **Interest on GST:**
- **Nature:** Similar to income tax interest, interest on delayed GST payments is also a penalty for non-compliance and is not considered an allowable business expense.
- **Accounting Treatment:** It should be recorded separately and is generally shown as "Interest on GST" or under "Penalties" in the books.

3. **Late Fee for Filing Returns:**
- **Nature:** Late fees for filing returns are penalties imposed for late submission of tax returns and are not considered a part of regular business expenses.
- **Accounting Treatment:** These should also be recorded separately, often under "Penalties" or "Late Fees" in the financial statements.

### Suggested Accounting Treatment:

1. **Recording in Books:**
- **Interest on Taxes (Income Tax, GST):** Record these under "Interest and Penalties" or "Tax Penalties" rather than as general expenses.
- **Late Fees:** Record these under "Late Fees" or "Penalties" in the financial statements.

2. **Classification in Financial Statements:**
- **Profit and Loss Account:** These items should be classified under "Other Expenses" or "Finance Costs" but clearly labeled as "Interest on Taxes" or "Penalties" to distinguish them from regular business expenses.
- **Tax Compliance Reporting:** Ensure proper disclosure in financial statements and tax returns, showing these items as separate from regular business expenses.

### Example:

In the Profit and Loss Account, you might have:

- **Interest on Income Tax:** ₹X
- **Interest on GST:** ₹Y
- **Late Fees for Filing Returns:** ₹Z

These amounts should be listed under an appropriate head such as "Interest and Penalties" or "Tax-related Expenses."

### Summary:

- **Interest and late fees related to taxes should not be included in general business expenses.** They should be accounted for separately to reflect their nature as penalties or interest charges.
- **They should be classified as "Interest and Penalties" or similar headings** in the financial statements for clear and accurate financial reporting.