TDS when exp is to be reimbursed other

This query is : Resolved

Guest

Guest (Querist)

19 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...

Entries will be made as follows then what to do…..

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..

Thanks
Rohit

Vikas Mehta

Vikas Mehta (Expert)
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19 September 2008 In terms of TDS there is no such word as reimbursement.

As per the above example-
For Y- he will make the payment to X after deduction of applicable taxes and will issue the TDS certificate.

For X- he will make the payment to Z after TDS and will issue the certificate.
X will get the income from y along with TDS certificate (to get the refund of taxes) and will get the claim as expenses for the payment done to Z.

For Z- Z will get the money from X and will get the TDS cerficate accordingly.