12 April 2011
I know the limit of TDS u/s 194J is Rs. 30000.00 p.a.(w.e.f. 1st July 2010) but there is some confusion that:
if we make provision in books in last year (FY 2009-10) of Rs. 15000.00 and deduct TDS of Rs. 1500.00 on that but in next year we receive the bill against the same is 25000.00 i.e. short provision of Rs. 10000.00 (that we taken in Prior Period expenses in current FY) and making provision of Rs. 25000.00 then the total balance in the account is Rs. 35000.00. so thus we have to deduct TDS on the same on not.
And what I think that TDS not to be deducted because the Professional fees/charges of the current FY 2010-11 is only Rs. 25000.00, and the short provision made for last FY of Rs. 10000.00 is not the Professional charges for current FY.
12 April 2011
See you have booked 15000/- (provision) in the last year. You recd the actual bill for 25000/-. so you need to book 15000/- against the provision & rest 10000/- as exp. This 10000/- will be treated as current year's expenses.
Hence, when you consider creating another provision in this current year for 25000/-, this will be treated as exceeding the limit in current FY. (10000+25000> 35000/-) & accordingly TDS provisions will apply on the whole 35000/-
12 April 2011
But Rs. 10000.00 why we treated as the current year expense because the bill is actually related to the last year and it is to be booked in last year. So, that expenses are to be taken is Prior Period expenses. Whether it is correct to treat it as current year expense.
13 April 2011
See... there is difference in booking expenses for accounting purpose with the same for TDS purpose.
Suppose.. on 30th march.. you have made an advance payment to a party for ..say..30000/- (expenses have not yet incurred & it will only incur in next FY). Here the expense related to next FY .. but you have to deduct TDS in the current FY only, at the time of making the payment.
So.. TDS rules are very clear.. it has to be deducted, whether such exp is part of current year exp or not.
13 April 2011
Now.. onto your question : whether to treat 1000/- as current FY exp is correct, when its actually related to previous year ?
Answer...in normal circumstances, you are right.. its not correct. BUT, here at the time of making the provision, the actual amount was not known & only due to this fact, the provision was created.Subsequently, the provision was proved short & hence the differential part of exp has to recognized. Its absolutely correct.
Suppose.. you make a provision for an expense @ Rs. 50000/-. In the next year, you receive the actual bill for 42000/-. Now... how will you treat this excess provision of Rs. 8000/- ?
The answer is similar... this excess provision will be treated as income on receipt of bill, even though its related to previous year.
The same principle applies in both cases... whether its a short provision or excess provision.
CAclubindia
