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U/s 194A..Its urgent

13 December 2010

HI,
My question is that, a firm purchase a raw material from the purchaser & there is a condition in the Purchaser invoice that if the payment is made after 15 days then he will charge interest @ 15p.a.
and our firm normally made a payment after 15 days, which attracts the interest liability according to the credit period availed by our firm. But in our books we didnt pass any entry regarding Interest due & didnt pay any interest.According to the calculations, there is a interest liability payable approximate to Rs400000 from April 2010 to Nov 2010.
As per the reply of Accountant, they pass the entry of interest due at the end of the year & deduct TDS thereon.

Now my question is when TDS liability should attract..at the time of payment of Purchase Bill or at the end of the year when payment stands credited.

Thanks In Advance
Vishal

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5 Replies

Ca kirti Nagpal (CA) (274 Points)
Replied 13 December 2010

As per sec 194A TDS is to be deducted either at the time of payment by way of cash,cheque or draft or credit it to any account,whichever is earlier

"when any income by way of interest as aforesaid is credited in any account whether it is called interest payable a/c or suspense a/c or by any other name in books of accounts of person liable to pay such income, such crediting shall be deemed to be credit of such income in the account of the payee"

So if the accountant credited it in books the liability to deduct TDS arises at that time n not at the year end when payment is to be made

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Devendra (Chartered Accountant) (4775 Points)
Replied 13 December 2010

Dear Vishal,

You are liable to pay TDS at the time of paying interest to the party for late payment on purchase of raw material.

For your information, late deposit of TDS attracts interest @ 1.5%from 01.07.2010 onwards.

Regards,

Devendra P Kulkarni

Devendra (Chartered Accountant) (4775 Points)
Replied 13 December 2010

@ Kirti : Interest will be payable on purchase of raw materials only when there is a delay in payment. If the payment of raw material is made in time there is no issue of interest then.

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 13 December 2010

for interest charged above the invoice, please ask the seller / supplier to issue debit note, and you have account that debit note before payment,
you have to deduct TDS on the strength of debit note only, so balance dates are irrelevent, when debit note is present.

Sunil (CA in Practice) (94 Points)
Replied 16 December 2010

The TDS will be payable when Interest component is brought in books, irrespective of when liability arose or when Debit note is raised.

The Provision of Deduction of TDS is very clear as to when you record the component or payment of the same, whichever is earlier, you have to deduct TDS. It doesn't talks about any Accrual concept or Supporting for the entry passed.

So TDS deduction shall be made on year-end when Liability is recorded andTDS shall be paid accordingly..

Regards

Sunil