A, an individual has taken loan from B, his close relative (by way of cheque).
Though B is not asking for any interest, A proposes to pay at nominal rate. But, due to continuous loss, A has not paid any amount towards interest.
However, A in his books of accounts, considering the Interest Payable as liability.
Query
1. Is it proper and right to consider the Interest Payable as liability ?
Ans : ..................
2. If it is right, how this effect will impact B's accounts ? (A may be paying interest only after a year or so. Can B consider it as income only upon receipt of interest from A, as B is a salaried individual).
1. Is it proper and right to consider the Interest Payable as liability ?
Ans : If interest is payable, then it should be provided and also TDS should deducted if applicable
2. If it is right, how this effect will impact B's accounts ? (A may be paying interest only after a year or so. Can B consider it as income only upon receipt of interest from A, as B is a salaried individual).
Ans : Yes, B Casn show the interest income on receipt basis, however TDS, if any deducted by A, will be allowed as payment of tax in the year in which the interest income has been shown.
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