LIVE GST Audit Course by CA Sachin Jain. Register Now!!

LOAN PROCESSING FEES

28 June 2007

HI FRIENDS

I M CONDUCTING AUDIT OF A PARTNESHIP FIRM AND THEY HAVE TAKEN LOAN FROM FINANCIAL INSTITUTION ,HOW TO ACCOUNT FOR PROCESSING FEE.MY NEXT PROBLEM IS THEY HAVE TAKEN CAR LOAN AND INTEREST OF LOAN IS MORE THAN RS.10000,WHETHER THEY HAVE TO DEDUCT TAX .THEY HAVE ALREADY ISSUED PDC,HOW WILL THEY DEDUCT TAX

Reply
Follow
Share

7 Replies

(Guest)

Hi Dharmendra, It is simple. Account the Processing fees as Bank Charges. If you are thinking of capitalizing the Processing fee, It is WRONG as Borrowing cost can be capitalized only if the conditions specified under the relevant AS are satisfied. Secondly If I remember Correctly TDS on interest payments to banks/financial institutions are exempt u/s 194A.

DHARMENDRA KAPOOR (CA) (178 Points)
Replied 29 June 2007

HI FRANCIS THANX FOR GIVING UR TIME ,CONFUSION REGARDING LOAN PROCESSING FEE IS STILL THERE. CAN I AMORTISED IT DURING LOAN PERIOD

(Guest)

Hi Dharmenda, You are welcome. No. You cannot amortize the Processing fee. This is because the matching concept of expense recognition requires that expenses be matched with the revenues they generate over a time period. If expenditure incurred benefits more than one period (say n years), then an appropriate amount is expensed each year over this period. This is the principle behind depreciation/amortization. If expenditure incurred cannot be traced to revenue or will not benefit future periods (like your processing fee, Loss due to fire...etc) They are considered as Period costs and EXPENSED IN THE PERIOD IN WHICH THEY ARE INCURRED. So you cannot amortize processing fee. I hope this helps you. Bye & Goodnight.

(Guest)

Sir, Loan Processing fee is one time payment not to be recovered in any case even the surrender of the loan will not entitle u for refund, so be amortised in the year of payment only thnx

(Guest)

Processing fees ia not covered U/s 194 A bur it will fall under 194J, where no exemption is given

sukumar (article trainee) (31 Points)
Replied 25 July 2009

hello every body . plz clarify me regarding adjustment of TDS paid in one quarter in another quarter . whether the same adjustment can be made or not....