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24-Income Tax Deduction by Client (TDS)

My Videos (Accounts Officer ) (717 Points)

29 June 2023

Hi Respected members,

Please educate me if the client withhold income tax (TDS), in which account it will be recorded? Further, please let me know will this account go to P&L or BS ?

Thanks in advance for your precious time and efforts to reply of this query.

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17 Replies

prasad Nilugal ( GST Practitioner & Accounts ) (14801 Points)
Replied 29 June 2023

For example if you are suppose to receive
professional fees from your claint,after deduction TDS on professional fees .

Trade Debtors A/c Dr
To Professional fees A/c
( fees receivable)

Fees receipt entry after TDS deduction by Client.

Bank A/c Dr
TDS on professional fees A/c Dr
To Trade Debtors A/c Cr

So TDS on professional fees A/c will be under Advances, Current Asset, Balance sheet.

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My Videos (Accounts Officer ) (717 Points)
Replied 29 June 2023

Dear Parsad Nilugal Sir,

Thanks for detailed reply.

Please educate me that we normally generate an account which named Loan and Advances. In this account we record loan and advance to staff.

Does this TDS deduction will go under this account or we have to generate another advances account ?

if another account require to generate, what name should we give to this account?

prasad Nilugal ( GST Practitioner & Accounts ) (14801 Points)
Replied 29 June 2023

TDS payment by us is like of Advance tax payment to Govt before assessment.only payment has been done by our clients in Government account therefore It should under advances ,otherwise you Can show under , " Other Current Assets " also .

My Videos (Accounts Officer ) (717 Points)
Replied 29 June 2023

Dear Parsad Nilugal Sir,

Thanks for detailed reply again.

can I give name to this account TDS receivable?

prasad Nilugal ( GST Practitioner & Accounts ) (14801 Points)
Replied 30 June 2023

Or , You Can create group TDS Deduction under Asset . and show TDS on professional fees A/c under, TDS Deduction .

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My Videos (Accounts Officer ) (717 Points)
Replied 30 June 2023

Dear Parsad Nilugal Sir,

Thanks for your reply.

I would like to ask you about procedure of adjustment of TDS deduction at the end of fiscal year.

I watched an video on YouTube in which a person adjust TDS deduction amount by income tax expense account.

Please educate, this type of adjustment are correct?

prasad Nilugal ( GST Practitioner & Accounts ) (14801 Points)
Replied 01 July 2023

We carry forward TDS deduction to next year , then what is the purpose?.

My Videos (Accounts Officer ) (717 Points)
Replied 01 July 2023

Dear Prasad Nilugal Sir,

According to that YouTuber reason of this adjustment to get profit after taxation so that it can transfer to proprietor or partners.

I am giving link below of that video for your information and kind comments.

Please watch it from 14:00 and let me know is YouTuber concept is practical?

https://m.youtube.com/watch?v=N8BXLM5qDdI

My Videos (Accounts Officer ) (717 Points)
Replied 04 July 2023

Dear Parsad Nilugal,

Any reviews on above ?

Sanjana Mohanty (100 Points)
Replied 06 July 2023

When a client withholds income tax (TDS), it is typically recorded in a separate account called "TDS Receivable" or "TDS Payable." This account represents the amount of tax withheld by the client on behalf of the taxpayer.

As for the financial statements, the TDS account will be recorded on the balance sheet (BS) as either an asset or a liability, depending on whether the taxpayer is entitled to receive a refund or owes additional tax. It is not recorded on the profit and loss statement (P&L) since it represents a tax liability or an advance payment of tax rather than an expense or revenue item.

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My Videos (Accounts Officer ) (717 Points)
Replied 06 July 2023

Dear Sanjana ma'am,

Thanks for your views.

my question is that at the end of fiscal year when we have to calculate that how much tax is payable to government

My Videos (Accounts Officer ) (717 Points)
Replied 06 July 2023

P-2

and you have to adjust those tax amount which already deduct by Client in advance how will you account it ?

prasad Nilugal ( GST Practitioner & Accounts ) (14801 Points)
Replied 07 July 2023

Yes , You have to deduct all Advance tax paid , TDS deducted by client , Self Assessment Tax paid ( if any ) , while paying the Income Tax assess by the Income tax department in the assessment year . . if you refer ITR2 , ITR3 , ITR4 , ITR6 you will find all these adjustments at the end .

Following manner you have account

So you do not know how much income tax payable to Govt on 31. st march , therefore you have make provision for Income tax on 31st march .

profit & Loss A/c Dr

To provision for Income Tax A/c Cr

( provision for income tax )

also Any Advance tax paid , TDS deducted by client ( as above ) , you have carried forward to next F.Y .

After assessment in the next year , pass adjustment entries as follows

provision for Income Tax A/c Dr

To Advance Tax A/c Cr

To TDS deducted A/c Cr

To income Tax payable A/c Cr

( income tax payable after adjustments )

Income tax payable A/c Dr

To Bank A/c Cr

( Income tax for last F.Y paid )

Confirm with company CA as well .

My Videos (Accounts Officer ) (717 Points)
Replied 10 July 2023

Dear Parsad Nilugal Sir,

Thanks for detailed reply.

can you please guide that provision of income tax can be taken from capital account?

and in case of partnership firm can this provision be taken from partners capital according to their partnership ratios ?