Acceptance of Deposit Rules.
This query is : Resolved
Quick Summary
CA Praveen Chopra
(Querist)
06 December 2025
If any amount is lying inactive in a customer account w.r.t. any credit note posted in his account due to rate difference, shortage etc i.e. other than amount received, will it be treated as deemed deposit under the Acceptance of Deposit Rules ?
06 December 2025
No, an amount lying inactive in a customer account due to credit notes (rate difference, shortage, etc.) is not treated as a deemed deposit under the Companies (Acceptance of Deposits) Rules, 2014. Such balances are considered trade-related adjustments and fall under the exclusions specified in Rule 2(1)(c).
06 December 2025
Definition of Deposit (Sec. 2(31), Companies Act, 2013):
A "deposit" includes any receipt of money by way of deposit, loan, or in any other form by a company, but excludes certain categories as prescribed.
• Rule 2(1)(c), Companies (Acceptance of Deposits) Rules, 2014:
Specifically excludes amounts received in the course of business, such as:
• Advance against supply of goods/services.
• Security deposits for performance of contracts.
• Credit balances arising from commercial transactions (e.g., rate differences, shortages, rebates, or adjustments).
Thus, credit notes posted in customer accounts due to commercial reasons are not deposits, since they are not receipts of money but accounting adjustments linked to trade transactions.
A "deposit" includes any receipt of money by way of deposit, loan, or in any other form by a company, but excludes certain categories as prescribed.
• Rule 2(1)(c), Companies (Acceptance of Deposits) Rules, 2014:
Specifically excludes amounts received in the course of business, such as:
• Advance against supply of goods/services.
• Security deposits for performance of contracts.
• Credit balances arising from commercial transactions (e.g., rate differences, shortages, rebates, or adjustments).
Thus, credit notes posted in customer accounts due to commercial reasons are not deposits, since they are not receipts of money but accounting adjustments linked to trade transactions.
06 December 2025
Inactive Credit Notes:
These represent adjustments to invoices (e.g., overbilling, shortages, discounts). They are not "money received" from customers, but rather reductions in receivables.
• Audit/Regulatory Defense:
• Maintain clear documentation showing linkage of credit notes to underlying sales transactions.
• Prepare reconciliation statements to demonstrate that such balances are trade-related, not deposits.
• Highlight Rule 2(1)(c) exclusions in replies to regulators.
These represent adjustments to invoices (e.g., overbilling, shortages, discounts). They are not "money received" from customers, but rather reductions in receivables.
• Audit/Regulatory Defense:
• Maintain clear documentation showing linkage of credit notes to underlying sales transactions.
• Prepare reconciliation statements to demonstrate that such balances are trade-related, not deposits.
• Highlight Rule 2(1)(c) exclusions in replies to regulators.
14 November 2026
The conclusion is right, but the reason is different. Rule 2(1)(c) has no exclusion for "credit balances from commercial transactions".
Why it is not a deposit
• A deposit is a "receipt of money" by way of deposit, loan or in any other form (Sec 2(31) Companies Act read with Rule 2(1)(c)).
• A credit note for rate difference or shortage is not money received. It only reduces the receivable. So the balance is outside the definition altogether; no exclusion is needed.
Where it can become a deposit
• If the credit balance arises because the customer paid more money (overpayment or advance), that part is a receipt of money.
• An advance for supply of goods or services is excluded only if adjusted against supply within 365 days (Rule 2(1)(c)(xii)(a)). After that it is a deemed deposit. Refund or adjust it in time.
Reporting and accounts
• DPT-3 (due 30 June) reports outstanding receipts not treated as deposits. Include customer advances; pure credit-note balances need not be reported.
• Show such balances as amounts due to customers (other current liabilities), not netted against receivables of other customers. Get balance confirmations.
• Long-pending balances written back are taxable as income under Sec 41(1).
Why it is not a deposit
• A deposit is a "receipt of money" by way of deposit, loan or in any other form (Sec 2(31) Companies Act read with Rule 2(1)(c)).
• A credit note for rate difference or shortage is not money received. It only reduces the receivable. So the balance is outside the definition altogether; no exclusion is needed.
Where it can become a deposit
• If the credit balance arises because the customer paid more money (overpayment or advance), that part is a receipt of money.
• An advance for supply of goods or services is excluded only if adjusted against supply within 365 days (Rule 2(1)(c)(xii)(a)). After that it is a deemed deposit. Refund or adjust it in time.
Reporting and accounts
• DPT-3 (due 30 June) reports outstanding receipts not treated as deposits. Include customer advances; pure credit-note balances need not be reported.
• Show such balances as amounts due to customers (other current liabilities), not netted against receivables of other customers. Get balance confirmations.
• Long-pending balances written back are taxable as income under Sec 41(1).
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Visiting card purchase
- GST on reimbursement of expenses
- Due date for filing return for the partner in partnership subjected to Tax Audit
- Query on effect of registration of property
- Goodwill transfer of deceased father’s firm – ICAI applying a 27.04.2026 cut-off to the 3 year limit
- Additional trade name
- Equity Share Sale and Purchase
- Number of years as per AS amortisation of Goodwill
- Whether output tax is taken credit by purchaser
- Wrong CMPo8 file
- Classification of income of P Ltd company as business or profession
- Opting out" of regime provided under subsection (1A) of Section 115BAC but Form 10IEA is not filed.
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Need to correct "Whether it is last installment " response in Form 26 QB
- " Income from House Property " in joint names of co-owners
- REGARDING TDS RETURN OF FORM 27Q
- Notice under e-Verification Scheme
- GST demand notice for ITC reversal against exempted supply.
- RCM ON SECURITY CHARGES FROM INDIVIDUALS
- How to get money back from delisted company
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
