Para 6.12 — MSO (A&E)
Original Rule Text
6.12 Moneys paid to a Sinking Fund for repayment of loan should be credited to the head "Sinking Fund for Loans granted to Local Bodies" and entered in the Register Form B prescribed in Para 6.4. Interest will be allowed on these deposits at the same rate as the loan itself bears. The interest payable on these deposits should be credited to the Sinking Fund by deduction from the receipt on account of interest on the loan. When the total balance of the Sinking Fund becomes equal to the amount of the loan, the credit under the head "Sinking Funds for loans granted to Local Bodies" and the debit under "Loans to Municipalities, etc" should be written off against each other.
- RETURNS
What This Means
When a borrower makes payments into a Sinking Fund instead of directly repaying the loan, these payments are credited to a specific head called 'Sinking Fund for Loans granted to Local Bodies' and recorded in Register Form B. Interest is allowed on these sinking fund deposits at the same rate as the loan. When the accumulated sinking fund balance (including credited interest) equals the loan amount, both the sinking fund credit and the loan debit are written off against each other, effectively closing the loan.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Sinking fund payments are credited to a specific account head for local body loans
- 2Interest on sinking fund deposits matches the loan interest rate
- 3Interest payable on deposits is credited by deducting from interest received on the loan
- 4When sinking fund balance equals the loan amount, both entries are written off
- 5Register Form B (prescribed in Para 6.4) is used to track sinking fund transactions
Practical Example
A Zila Parishad has a Rs. 1 crore loan at 5% interest, repayable via sinking fund. Each half-year, the Parishad deposits Rs. 4 lakh into the sinking fund. The AG credits this to 'Sinking Fund for Loans to Local Bodies' and allows 5% interest on the accumulated deposits. After 10 years, the sinking fund balance (deposits plus credited interest) reaches Rs. 1 crore. The AG then writes off the Rs. 1 crore sinking fund credit against the Rs. 1 crore loan debit, closing the loan account.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Why is interest on sinking fund deposits deducted from loan interest receipts?▼
What happens if the sinking fund balance exceeds the loan amount?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.