Tds in cash flow
This query is : Resolved
CA Manish Mishra
(Querist)
07 May 2012
hello Experts,
kindly help, in cash flow when we pay interest after deducting tds how to show it in financing activity ( Gross or net).
If gross then tds not paid will increse our current liability which will ultimetly effect working capital
plz answer it
kindly help, in cash flow when we pay interest after deducting tds how to show it in financing activity ( Gross or net).
If gross then tds not paid will increse our current liability which will ultimetly effect working capital
plz answer it
CA Manish Mishra
(Querist)
07 May 2012
plz answer it soon
07 May 2012
Interest has to be taken on Gross basis only.
Message likes :
1 times
07 May 2012
Manish,
Is your Q in the context of financial modelling or wrt finalization? Pls. be clear.
Is your Q in the context of financial modelling or wrt finalization? Pls. be clear.
Message likes :
1 times
CA Manish Mishra
(Querist)
08 May 2012
in respect of finalisation
CA Manish Mishra
(Querist)
08 May 2012
in respect of finalisation
Also if fixed deposite with bank has been lien can we show it in cash or investing
Also if fixed deposite with bank has been lien can we show it in cash or investing
27 July 2025
Here’s how TDS and interest payments are generally treated in **cash flow statements (finalization context)**:
### 1. **Interest Payment after TDS — Presentation in Cash Flow**
* **Interest paid** is shown **net of TDS** in the **cash flow from financing activities** (or operating activities, depending on the nature of interest).
* **Why?** Because actual cash outflow is the **net amount paid** to the bank or lender (gross interest minus TDS deducted).
* The **TDS amount deducted** is not part of your cash outflow — it is a cash outflow to the government **separately**.
* The **TDS amount deducted** is recorded as a current asset (TDS receivable) until it is adjusted/refunded.
* So, **cash flow statement will show net interest paid**, matching actual cash flow.
---
### 2. **Impact on Current Liabilities / Working Capital**
* The TDS deducted but not yet remitted to government (if any) is shown as **current liability**.
* Once remitted, this liability reduces.
* Since TDS is not cash outflow from your bank directly (except when remitting), it affects working capital only as a liability on books.
---
### 3. **Fixed Deposit with Bank on Lien**
* If the FD is lien-marked (pledged) against a loan, it is still classified as **investment** (not cash or cash equivalents).
* In cash flow statement, **FDs are part of investing activities** (purchase/redemption).
* FD on lien **cannot be considered cash or cash equivalent** because it is not freely available.
---
### **Summary:**
| Item | Cash Flow Treatment |
| ----------------------------- | ------------------------------------------------------ |
| Interest paid (after TDS) | Show net amount paid in financing/operating activities |
| TDS deducted but not remitted | Current liability until paid |
| Fixed Deposit on lien | Shown as investing activity, not cash or equivalents |
---
### 1. **Interest Payment after TDS — Presentation in Cash Flow**
* **Interest paid** is shown **net of TDS** in the **cash flow from financing activities** (or operating activities, depending on the nature of interest).
* **Why?** Because actual cash outflow is the **net amount paid** to the bank or lender (gross interest minus TDS deducted).
* The **TDS amount deducted** is not part of your cash outflow — it is a cash outflow to the government **separately**.
* The **TDS amount deducted** is recorded as a current asset (TDS receivable) until it is adjusted/refunded.
* So, **cash flow statement will show net interest paid**, matching actual cash flow.
---
### 2. **Impact on Current Liabilities / Working Capital**
* The TDS deducted but not yet remitted to government (if any) is shown as **current liability**.
* Once remitted, this liability reduces.
* Since TDS is not cash outflow from your bank directly (except when remitting), it affects working capital only as a liability on books.
---
### 3. **Fixed Deposit with Bank on Lien**
* If the FD is lien-marked (pledged) against a loan, it is still classified as **investment** (not cash or cash equivalents).
* In cash flow statement, **FDs are part of investing activities** (purchase/redemption).
* FD on lien **cannot be considered cash or cash equivalent** because it is not freely available.
---
### **Summary:**
| Item | Cash Flow Treatment |
| ----------------------------- | ------------------------------------------------------ |
| Interest paid (after TDS) | Show net amount paid in financing/operating activities |
| TDS deducted but not remitted | Current liability until paid |
| Fixed Deposit on lien | Shown as investing activity, not cash or equivalents |
---
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