07 March 2020
A proprietorship firm had taken unsecured loan from several individuals since last 8 years with a high interest rate ranging from 24%-36% per Annum. It was paying interest monthly to the lendor. But, the firm had not booked exp. and also not deducted TDS on interest portion of Unsecured Loan. Now, the firm wants to claim the past 7-8 years interest expenses in current financial year and will deduct TDS on the same.
Can the firm able to claim it as expenses belongs to prior periods in current year? If yes, then elaborate with proper provisions along with any case law available.
Example: Unsecured Loan availed by proprietor 1 Crore Interest Rate: 30% 7 Years Interest: 1 Crore * 30% *7 Years = 2.10 Crore
In previous Years, the firm had not booked exp. of Rs 2.10 Cr. and not deducted TDS. Only interest payment entry was made. Hence, ledger of lendor Credit Balance of 1 Crore, becomes debit balance of 1.1 Cr. Now to reconcile the ledger, it wants to book 2.1 Cr interest in current Financial Year as allowable exp. by deducting TDS@10%. Is it allowable under the Act?
08 March 2020
Interest of the earlier years can not be claimed as expense. Only for the relevant previous year / (current FY) can be claimed as an expense. Merely by deducting TDS you can not claim interest for Unsecured Loans taken from the Individuals.
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