INTEREST Calculation in TallyPrime

Interest is a legitimate return on money invested and chargeable in the business world on loans and on delayed payments. If you have given a loan or you have sold your goods to your customers, then you can decide to charge interest for such loans given or on delayed payments from your customer. You can also keep track of the interest charged by the bank on your overdraft account. Apart from that you can also set advanced parameters to calculate interest. You can view the interest accumulated on the loan given or on the payment due from Groups, Ledger balances and Invoices. Finally, you can record the Interest receivables and payables using voucher class for debit and credit notes.

In TallyPrime, you do not have to manually calculate the interest you need to pay or receive. It is available just with a click of a button. All you need to do is select the ledger which is enabled with Interest calculation and you can see the total interest accumulated. If you want to see the interest for each transaction then you can select the invoices. While recording the Interest Payable and Receivable, TallyPrime filters and displays only those ledgers for which the Interest calculation option is enabled.

Enable Interest Calculation in Tallyprime

To start calculating interest on loans given or taken or on delayed payments you need to first enable the Interest Calculation feature in TallyPrime.

1. Press F11(Features) > set Enable Interest Calculation to Yes.
   If you do not see this option:
   1. Set Show more features to Yes.
   2. Set Show all features to Yes.
2. Accept the screen. As always, press Ctrl+A to save the Company Features Alteration screen.

Set Simple Inteterest Parameters for Bank Ledger

In your business, if you maintain a Bank overdraft account, you can borrow more money from that account than the amount you have in that account. This behaves like a loan taken from a bank on which the interest is charged. Suppose your Bank overdraft account has an opening balance of Rs. 5,000 and you have made payments to your supplier twice one for Rs. 10,000 and another for Rs. 7,000. The bank charges 10% interest per Calendar year. On the overdrawn amount your interest gets calculated for the year.

Let us now see how to configure the bank account with the interest parameters.

1. Create the bank ledger with interest calculation.
   1. In the Ledger Creation screen, create the Bank ledger.
   2. Set the option Activate interest calculation to Yes. The Interest Parameters screen appears.
2. Configure the Interest Parameters.
   1. In the Interest Parameters screen, under Calculate Interest Based on field, select Voucher Date or Bank/Reco Date.
      1. Voucher Date: This is displayed in the Ledger Interest report.
      2. Bank/Reco Date: This is displayed in the Bank Reconciled Transactions report.

   2. Set Include transaction date for interest calculation as No. This can be enabled For amounts added and/or For amounts deducted.
      To exclude or include the transactions, you can use the options, as shown below.

      For amounts deducted	For amounts added
      		Yes	No
      	Yes	Includes both the additions and deductions on the transaction date to the amount. Interest is calculated after considering the amount of the transaction date.	The additions done on the transaction date will be considered from the next day onwards, whereas, the deductions are considered on the transaction date for calculating interest.
      	No	The additions are included on the transaction date, and the deductions are excluded from calculating interest on the transaction date. The interest on the deductions is calculated on the next day.	Excludes both the additions and deductions on the transaction date. The interest is calculated on the net amount from the next day.

      The terms additions and deductions are used in relation to the opening balance (either zero or any value). When any amount is added to the opening balance, it should be treated as an addition, and when any amount is reduced from the opening balance, it should be treated as a deduction. In other words, the ‘interest calculation for the day’ means opening balance + additions – deductions, which is the closing balance of the day.

   3. Enter the Rate of interest and Interest Style, as required.
      The Rate of interest is calculated based on the Interest Styleapplied.

      If the interest style selected is 365-day Year, then the interest will be calculated for 365 days irrespective of the number of days in the calendar year. If Calendar Year is selected as the interest style, then the rate of interest will be calculated on 365 days or 366 days, depending on the number of days as per the calendar.

   4. Select the Interest Balances.
      All Balances: If you want to charge interest on both loan taken and the given amount.
      Debit Balances Only: If you want to charge interest on the loan given.
      Credit Balances Only: If you want to charge interest on the loan taken.
      
      
   5. Press Ctrl+A to save the Interest Parameters screen.
3. Accept the screen. As always, press Ctrl+A to save the Ledger Creation screen.

Interest Calculation Transaction-by-Transaction

If you want to charge interest to your debtors for every individual transaction then you can enable the option Calculate Interest Transaction-by-Transaction. If you maintain your balances bill-wise only then you can enable the option for transaction by transaction. Suppose you have sold goods worth Rs. 50,000 to Mr Bikash on 1^st Jan, and then again sold goods worth Rs. 40,000 on 25^th Jan and charged 2% interest per Calendar month. Then you can see the interest getting due at the end of the Calendar month for both sales. The interest on the goods sold on 1^st Jan will get due for 31 days, and the goods sold on 25^th Jan will get due for 6 days. So every month you can see the interest getting due from Mr Bikash until he makes the payment of the goods sold to him along with interest payable.

1. Create the party ledger with interest calculation.
   1. In the Ledger Creation screen, create the party ledger under Sundry Debtors.
   2. Set the option, Activate interest calculation to Yes. The Interest Parameters screen appears.
2. Configure the Interest Parameters.
   1. In the Interest Parameters screen, set the option Calculate Interest Transaction-by-Transaction to Yes.
   2. Set Include transaction date for interest calculation as No. This can be enabled For amounts added and/or For amounts deducted.
      For example, for a sundry debtor ledger, an invoice was raised for Rs. 50,000 on the 1st of April 2022, against which Rs. 20,000 was received on the same day. Now you may want to include the invoice amount and exclude the received amount, for the purpose of calculating interest on 1st April 2022.
   3. Set the option Override Parameters for each Transaction to Yes, to change the parameters while recording vouchers.
   4. Enter the Rate of interest and Interest Style, as required.
      The rate of interest is calculated based on the interest style applied.
   5. Select the Interest Balances.
      All Balances: If you want to charge interest on both loan taken and the given amount.
      Debit Balances Only: If you want to charge interest on the loan given.
      Credit Balances Only: If you want to charge interest on the loan taken.
       
   6. Press Ctrl+A to save the Interest Parameters screen.
3. Accept the screen. As always, press Ctrl+A to save the Ledger Creation screen.

With the set-up in the party ledger, interest gets calculated for all the sales made to this party until the amount is paid.

Interest Calculation on Total Amount

In your business, if you do not maintain the balances bill-wise, then you can also charge interest to your debtors on the total amount of sales you have done at the end of each month. Suppose, at the end of the month you have sold goods worth Rs. 1,00,000 to Mr Ajay, and you want to charge 2% interest per Calendar month. Then you can see the interest due on the total amount every month till the payment is made by Mr Ajay. Similarly, you have given a loan to an employee of Rs. 50,000 and you are charging 2% interest per Calendar month. So every month you can see the interest getting due until the payment is made along with interest.
Below is the procedure where interest is calculated on the total amount.

1. Create and configure the party ledger.
   1. In the party creation screen, disable the option Maintain balances bill-by-bill if you do not maintain balances bill-wise.
      If this option is disabled then in the Interest Parameter screen you cannot see the option Calculate Interest Transaction-by-Transaction.
   2. If you maintain balances bill-wise but do to want to calculate interest for every transaction, then in the Interest Parameters screen, you can disable the option Calculate Interest Transaction-by-Transaction.
   3. Set Include transaction date for interest calculation as No. This can be enabled For amounts added and/or For amounts deducted.
   4. Enter the Rate of interest, Interest Style and Interest Balances, as required.
   5. Press Ctrl+A to save the Interest Parameters screen.
2. Accept the screen. As always, press Ctrl+A to save the Ledger Creation screen.

Set Advanced Interest Parameters for Bank Ledger

If the interest rate of your Bank OD account changes periodically, then to calculate the interest with the changed rate you need to configure your Bank accounts accordingly. The advanced interest parameters allow you to maintain multiple interest rates together with the period applicable for such rates. Suppose, the rate of interest on your Bank overdraft account is 10% and it is applicable from 1st April to 30th September, then the rate of interest got changed to 15% till 31st March. You need to set the advanced parameters to maintain both rates with their applicable dates.

1. Configure bank ledgers with advanced parameters.
   1. In the Ledger Alteration screen of the Bank ledger, press Enter on Activate interest calculation. The Interest Parameters screen appears.
   2. In the Interest Parameters screen, press F12 (Configure) and set Use advance interest parameters to Yes.
   3. Specify the Rate along with Interest Style and Applicability.
      
   4. If there are multiple rates, update the Applicable From field mentioning the date range for each rate.
   5. Press Ctrl+A to save the Interest Parameters screen.
2. Accept the screen. As always, press Ctrl+A to save the Ledger Creation screen.

Set Advanced Interest Parameters for Party Ledger

The advanced interest parameters in the party ledgers let you set multiple rate slabs. With advanced parameters, you have the option to give grace periods to your customers. Suppose, the due date for payment by your customers against each sale is 10 days from the date of the sale. You can start calculating interest right after the 10 days are over. But you also have the option to give a grace period for another 5 days to your customer so that they can make the payment and they do not have to pay the interest. In case they fail to pay the amount even after the grace period then you can calculate the interest after the 15th day. You can also enable override the advanced parameters which will let you change the parameters while recording the transaction.
The below procedure is for calculating interest transaction by transaction.

1. Configure party ledger with advanced parameters.
   1. In the Ledger Alteration screen of the party ledger, press Enter on Activate interest calculation. The Interest Parameters screen appears.
   2. In the Interest Parameters screen, press F12 (Configure) and set Use advance interest parameters to Yes.
   3. Enable Override advanced parameters to change the parameters at the time of recording the voucher.
   4. Specify the Rate along with the Interest Style.
   5. Select the Applicability.
      1. Always: You can select Always if you want the interest to be charged from the expiry of the due date.
      2. Past Due Date: You can select this option to give a grace period to your customers after the due date.
         You need to mention the days of the grace period post which the interest will start calculating.
         
   6. Select the options for Calculate From field, as required.
   7. Press Ctrl+A to save the Interest Parameters screen.
2. Accept the screen. As always, press Ctrl+A to save the Ledger Creation screen.

In the case of the above configuration, interest is calculated at 10% starting from the 5th day after the due date and at 15% starting from the 10th day after the due date. Similarly, multiple slabs can be configured with different interest styles, and applicability, calculate from parameters and round off values.