Bank guarantee fees

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Ramesh Kumar Bhatter (Querist)
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04 June 2012 The assessee is manufaturer and selling goods to govt on allotment of Tenor. As per terms of Tendor allotment they have to provide bank guarantee for 3 years.
please suggest the accounting of Bank Guarantee Fees Paid for 3 years to Bank with respective section or rules under Income Tax.

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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04 June 2012 Bank Guarntee fees is sort of bank charges. you can book it under Finance/Bank Charges.

The same is deductible expense.
Bank Guarantee given has to be shown as "Contingent Liability" which is a off balance sheet item and disclosed by way of notes.

Ramesh Kumar Bhatter

Ramesh Kumar Bhatter (Querist)
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04 June 2012 Whether Bank Guarantee Fees Paid for 3 years to be allowed in the year of payment wholly or in 3 years under income tax

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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05 June 2012 Under income tax it will be allowed in the year of exenditure itself.

For Accounting purpose, you can show fees for 2 years as prepaid expense and fees for 1 year as current year expense.

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