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Whether Tax Is Required To Be Deducted In Respect Of Interest Accrued But Not Due?

QUERY: X Ltd. has issued debentures on which interest is payable every six months on December 31st and June 30th. The debentures are listed on the stock exchange. As per the consistently followed accounting practice, the company has made provision for interest on debentures for the period January 2010 to March 2010. However, it has neither deducted nor paid the TDS in respect of such provision. The tax is deducted and paid on or after each coupon date, and hence will be deducted and paid on 30th June, 2010. Certificates for TDS will be to the persons who are the registered holder of debentures as on the coupon date. The company wants to reconfirm whether the practice followed by it is correct in law or not? Please advise the company as to whether the amount of interest provided has to be included in the quarterly E-TDS return for March, 2010? Whether interest debited in P & L A/c. would be disallowed under section 40a(ia) of the Act?
ANSWER: Click here to read the full answer of the expert

– From January 1 to March 31, 2010, “interest accrued but not due”, for which provision has been made in the accounts. However, it will be due only on June 30, 2010 and would be credited to payees account or suspense account or payable account

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