Journal Entry for Interest paid to creditors towards delay in payment

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When a vendor issues a GST invoice for interest on late payments, you'll need to record this in your accounts. The standard journal entry involves debiting an 'Interest on Delayed Payment' account and crediting your 'Creditors' account. Crucially, if GST is charged, you'll also debit the relevant Input CGST/SGST or IGST account. This input tax credit is claimable as the interest is considered part of the supply's value. Remember to also consider TDS implications on the interest if it exceeds the annual threshold.

Elbin

Elbin (Querist)

11 February 2024 My vendor has issued a GST invoice towards interest for outstanding payments. What will be the journal entry for the same & under which head ?

CA Rashmi Gandhi

CA Rashmi Gandhi (Expert)

12 February 2024 Interest A/c. Dr To Creditors A/c Interest will be clasiyas indirect expenses

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

28 October 2026 Since the vendor has charged GST, the entry is Interest on Delayed Payment A/c Dr + Input CGST/SGST (or IGST) A/c Dr To Vendor A/c — ITC is allowed as the interest forms part of the value of supply; also check TDS on the interest (now Sec 393 of the Income-tax Act 2025, earlier 194A) once it crosses ₹10,000 in a year.

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