TDS on exp. (Reimbursement)

This query is : Resolved

Guest

Guest (Querist)

18 September 2008 Hi Expers...

Suppose X has incurred expenditure on behalf of Y and made a payment to Z in respect of expenditure indcurred.

Then expenditure is reimbursed by Y to X.

Now problem is that who will deduct tax at source.

a) Whether X is liable to make TDS from payment to be made to Z

or

b)whether Y will make TDS from payment to be made to X....

Who has to comply with TDS provisions...

Thanks

CA Pawan Goswami

CA Pawan Goswami (Expert)
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18 September 2008 The person booking the expense or crediting the party will be liable to deduct tax.

In this case, Y will deduct the tax .

Ankit Gupta

Ankit Gupta (Expert)
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18 September 2008 X is liabile to deduct TDS. Because of X is paying the amount of such expenditure. Z has raised bills on Y but amount paid by the X. X is responsible to deduct TDS and Y is accountable.

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CA Pawan Goswami

CA Pawan Goswami (Expert)
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18 September 2008 Hi Friend ,
You are mistaking in understanding the issue. The issue can be clarified by the following entries

In the books of Y

(At the time of booking expenses)
Expense Dr.
To Z

(At the time of payment to Z by X)
Z Dr.
To X

(At the time of reimbursement)
X Dr.
To BAnk

In this case just there is replacement of parties between X and Z . Thus, TDS should be deducted by Mr. Y from Mr. z .

Guest

Guest (Querist)

19 September 2008 Hi experts...

you might not be getting my point, so i am clarifying the entries as follows;

In the Books of X...
1.Expense A/c. Dr.
To Z a/c.
(booking of Exp.)
2.Z a/c. dr.
to Bank a/c.
(Payment to Z)
3.Y A/c. Dr.
To Expense A/c.
(Debit Note raised on Y)
4.Bank A/c. Dr.
To Y A/c.
(Reimbursement by Y)

In books of Y..
1.Expense a/c. Dr.
To X a/c.
(As per above Debit NOte.)
2.X A/c. Dr.
To Bank A/c.
(Payment towards Exp.)

Now in above case Y is not directly related to Z, while the income is generated by Z only hence the TDS on Z's income shall be made.

However the expenses is claimed by Y in his books and hence the person who is claiming the exp. shall make the TDS otherwise exp. will get disallowed, so he needs to deduct tax from X which is wrong..

SO no think and reply.

Thanks
Rohit

Vikas Mehta

Vikas Mehta (Expert)
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19 September 2008 For Y- Y will make the payment to X after TDS and will issue TDS certificate.

For X- X will get the money from Y and TDS certificate.
Also, X will make the payment to Z after TDS and will issue TDS certificate.
No effect in X books ultimately.

For Z- Z will get the money from X after tax along with the TDS certificate.

Advocate Vivek Kumar Sancheti

Advocate Vivek Kumar Sancheti (Expert)
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20 September 2008 TDS is deductable on the amount of receipts, which includes income,earned by a person.It should be deducted by the person making the payment.In the above case X is making the payment to Z.Y is only reimbursing X for making the said payment.Had the payment been made by Y to Z directly then the TDS would had been deductable by Y on the payment made to Z.Therefore,X is liable to deduct TDS.

Guest

Guest (Querist)

22 September 2008 thanks to all

But yet i am confused...

Rohit

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Guest

Guest (Querist)

22 October 2008 thanks