What is mean by cash credit? what is the treatment in income tax & accounting?

Answer 1

cash credit
Definition

A short-term cash loan to a company.

Applying the Cash or Accrual Method of Accounting for Income Tax Purposes


Keeping your books and doing your taxes based on the same method of accounting will facilitate your financial reporting and preparation of tax returns. But differences in the treatment of some items will undoubtedly arise, when the tax rules specifically define how certain types of transactions must be reported for income tax purposes.

Answer 2

An inward of cash whereby the total cash balances of the entity will rise. If it so happens without touching the regular course of sales / services by entity it is called as " Cash Credit ". On this inward cash encumbrance is NOT on sales. That is the 1st Charterestic of Cash Credit.

In INCOME TAX : So much of cash credit whose inward source is identified will be taken as Liability and may be carried over the balance sheet to match the assets. If the source could not be explained it is called "UNEXPLAINED CASH CREDITS' and will be put to Flat Tax Rates u/sec.68 read with Sec.69 of IT Act 61

In ACCOUNTS : Whether explained or not its equvalent value is treated as LIABILITY and carried over to Balance Sheet under the respective head of account (if source is found). If source is not found it will be held under "Suspense" A/c. and will be carried forward to next accounting period. If not such source is found after 3 consecutive accounting years, in the fourth accounting year it will be treated as "GAINS" and will be credited to the profit and loss account and added to the total profits earned during the 4th year. It will be treated as NON_OPERATING Income.

Answer 3

It is an overdraft account secured by assets, mostly current assets. It is to be classifed as secured loans, in accounting. There is no seperate treatment in income tax.