Interest Income
Also called: Interest Received
Interest earned on bank savings, fixed deposits and loans given, on the Profit and Loss statement. Banks withhold 15 percent TDS from a company, 6 percent from individuals.
In detail
Interest Income is what the bank or a borrower pays the company for the use of its money: fixed deposit interest, savings interest, or interest on a loan to a related party. Banks in Nepal credit interest net of TDS, 6 percent for a natural person and 15 percent for a company, so the ledger must be credited with the gross amount while the withheld tax is debited to TDS Receivable for set-off against the year's income tax. Interest is not subject to VAT and does not appear in the Sales Book. Posting only the net amount received understates both income and the tax credit, and the TDS certificate from the bank will not match the books.
Formula
Gross interest = Net amount credited by the bank / (1 - TDS rate); TDS Receivable = Gross - Net
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Bank Account | Rs 10,200 | |
| TDS Receivable | Rs 1,800 | |
| Interest Income | Rs 12,000 |
How to record it in BRAccount
- 01Take the interest credit and the TDS from the bank statement or the fixed deposit advice.
- 02Go to Invoicing > Journal Entry > New dated the credit date.
- 03Debit the bank account for the net received and TDS Receivable for the tax withheld.
- 04Credit Interest Income with the gross amount.
- 05Submit. The entry below posts.
- 06Match the bank row with Banking > Bank Reconciliation Tool and keep the TDS certificate for the annual return.
When to use it
Post by Journal Entry or Payment Entry when the bank credits interest. Book the withheld tax to TDS Receivable.
Example from the demo books
Dr Bank Account Rs 10,200, Dr TDS Receivable Rs 1,800, Cr Interest Income Rs 12,000 for quarterly fixed deposit interest.