22 June 2010
There was a agreement with a contractor wherein if we fail to make the payment on a specified date we have to make them the delay payment charges @2% per month.
We are now making the payment along with the interest, please guide me whether the same will be booked as interest in my book or as payment to contractor so that correct TDS is deducted on the interest amount. Please reply with reasons
22 June 2010
The penalty amount should be shown seperatly as it is not allowed as expense. IF you club it with interest amount it will not be legal :) though you can do so to avoid tax liability
22 June 2010
TDS will be deducted on Contractual amount regarding sevices. Interst is penal nature which is due to non-payment in time. Hence TDS will not deducted on it.
22 June 2010
Though it is penal but the same is allowed as a deduction in Income Tax but if TDS is not deducted on interest amount the same may be disallowed???
CAclubindia
