CA M. com
10823 Points
Joined November 2008
Look, even i have never heard or read something like this...
But in one example, i came across with this concept in PCC...
The example was :
Mr. X bought loan of Rs. *****... on which he was suppose to pay Rs. 5000 p.a as interest.... For consecutive 4 years he didnt pay anything... That means, now he was liable to pay principal amount as well as Rs. 20000 as interest at the end of 4th year...
Mr. Y (the lender), continued charging interest at principal amount at same old rate, but also charged Rs. 5000 as interest on UNPAID INTEREST TILL DATE... So, in 5th year, Mr. X has to pay Rs. 30000 as total interest amount (Rs. 25000 interest amount on principal and Rs. 5000 interest on UNPAID INTEREST)., and for the whole of interest amount he was eligibile to get deduction from profit in 5th year...