Security deposit
This query is : Resolved
01 April 2019
Hi Everyone,
Question for the day.
Basically, our company is a railway infrastructure co., where we undertake railway contracts, before we receive the contract we need to pay 10% of contract value as a deposit, out of that 2% will be paid by us & balance 8% will be deducted by railways at the time of generating invoice, now my question is that 8% is to be considered as sales or it should be treated as deposit only?
Question for the day.
Basically, our company is a railway infrastructure co., where we undertake railway contracts, before we receive the contract we need to pay 10% of contract value as a deposit, out of that 2% will be paid by us & balance 8% will be deducted by railways at the time of generating invoice, now my question is that 8% is to be considered as sales or it should be treated as deposit only?
01 April 2019
Deposit recovered From Sales , the portion first consider as sales , Realised outcome to be treated as Deposit
01 April 2019
But In every bill generated by railways, they show the actual sales then deduct balance security deposit & TDS in that where that deposit will be credited to us after a year. The amount paid by them once sales have done is the value after deducting TDS & deposit which is immediately after the generation of bills.
23 July 2025
Your situation pertains to how to account for the 8% security deposit withheld by Indian Railways from your invoices, in relation to a railway infrastructure contract. Let's clarify how to treat this correctly from both accounting and tax perspectives.
🔍 Key Points:
Total contract value = 100%
2% paid upfront by your company
8% withheld from each invoice raised by you (from your payment) by the Railways as security deposit
Invoices reflect full contract value (gross sales), but payments are made net of 8% security deposit and TDS
The 8% is refundable after a year (post-completion or based on terms)
🧾 Accounting Treatment:
✅ The 8% withheld is NOT part of sales. Here's why:
The gross invoice amount is already considered sales revenue (as per contract performance).
The 8% deduction is not an expense, nor a reduction in sales.
It is a contractually refundable security deposit, hence it should be recorded as a current asset (receivable).
📘 Journal Entry at Time of Invoicing:
Suppose your invoice is for ₹1,00,000.
At the time of raising the invoice:
plaintext
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Edit
Accounts Receivable A/c Dr. 1,00,000
To Revenue (Sales) A/c 1,00,000
At the time of receiving payment (8% deposit and TDS withheld):
Assuming 8% deposit = ₹8,000, and TDS = ₹2,000:
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Edit
Bank A/c Dr. 90,000
Security Deposit with Railways A/c Dr. 8,000
TDS Receivable A/c Dr. 2,000
To Accounts Receivable A/c 1,00,000
The ₹8,000 is shown under Current Assets as Security Deposit (Recoverable).
It will be reversed when the Railways refunds it.
💡 Summary:
✅ 8% is a deposit, not sales or expense.
✅ You should account for the full invoice value as sales.
✅ The 8% is a recoverable deposit shown under loans & advances or other current assets.
🧾 Keep documentation (contract terms, refund schedule) to support audit/tracking.
🔍 Key Points:
Total contract value = 100%
2% paid upfront by your company
8% withheld from each invoice raised by you (from your payment) by the Railways as security deposit
Invoices reflect full contract value (gross sales), but payments are made net of 8% security deposit and TDS
The 8% is refundable after a year (post-completion or based on terms)
🧾 Accounting Treatment:
✅ The 8% withheld is NOT part of sales. Here's why:
The gross invoice amount is already considered sales revenue (as per contract performance).
The 8% deduction is not an expense, nor a reduction in sales.
It is a contractually refundable security deposit, hence it should be recorded as a current asset (receivable).
📘 Journal Entry at Time of Invoicing:
Suppose your invoice is for ₹1,00,000.
At the time of raising the invoice:
plaintext
Copy
Edit
Accounts Receivable A/c Dr. 1,00,000
To Revenue (Sales) A/c 1,00,000
At the time of receiving payment (8% deposit and TDS withheld):
Assuming 8% deposit = ₹8,000, and TDS = ₹2,000:
plaintext
Copy
Edit
Bank A/c Dr. 90,000
Security Deposit with Railways A/c Dr. 8,000
TDS Receivable A/c Dr. 2,000
To Accounts Receivable A/c 1,00,000
The ₹8,000 is shown under Current Assets as Security Deposit (Recoverable).
It will be reversed when the Railways refunds it.
💡 Summary:
✅ 8% is a deposit, not sales or expense.
✅ You should account for the full invoice value as sales.
✅ The 8% is a recoverable deposit shown under loans & advances or other current assets.
🧾 Keep documentation (contract terms, refund schedule) to support audit/tracking.
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