Dear sudhanshu,

I agree with you that there is no provision in income tax which is related to rendering of services. But if it is allowed then will become a lacuna in law.

Now tell me one thing:-

If we talk about very big companies...... they prepare their balance sheets monthly.

While preparing balance sheet of september 2009 they would also have made provision for the expense incurred on 29.09.2009 according to accrual concept.

Now when they make the provision then the liability will arise there is no doubt because they would have credited the party's a/c while making the provision.

Now what u say?

Mr. Shailendra,

I know that there are many big companies who issue there monthly Balance Sheet but they usually fridge there accounts on a particular date or you can say they follow a cycle. And in this situation i know deductee will be happy as no deduction will be made(according to me). But according to Income Tax Act, 1961 for deduction of TDS date of credit of party or date of payment is important and here neither the date of crediting the party nor the payment was on or before 30-09-09. So there should be no deduction of TDS.

 Wait  a minute........ what are you saying i didn't understand completely.

I said that while preparing the september balance sheet the company would make a provision for the expense on 30.09.2009, and when they will make a provision TDS liability will arise because liability has been created.

In this issue also are you saying that TDS won't be deducted? Is it like that? Please explain.

I agree with sudhanshu. there will not be any deduction of TDS

The query which you are raising now is all together different. Now you are saying that you are creating a provision for the expense. But when you will make provision then you will pass the following entry

Expense A/c .............Dr.

        To Expense Payable A/c

But here also party is not credited so until and unless you credit the party how can u deducte TDS.

If provision is created then liability to deduct will arise as well as it is very clear in the Act.

 Dear sudhandhu,

Please refer to the provisions of TDS. There it is clearly written that whether to credit the party or some other account or a suspense account, TDS liability will arise as soon as the liability is created. I am sure on that. If this happens then the whole industry will follow the same practice and will not deduct TDS of any party. They will simply credit any account otherwise than the party and not deduct TDS. Please refr either to the income tax act or singhania sir's reckoner on that.

Dear Shailendra,

If there is a mistake on my part while giving answer. I think its better if you correct it rather than giving such a big comment.

Yes im agree with you that if you will create any provision then you have to dedcute TDS but again coming back to your main query TDS will not be deducted as there was no provision and you booked entry on 2-10-09.

 Dear sudhanshu,

i am very sorry if you got hurt by my words. My intention was not of hurting you. I just wanted to correct you. Very very sorry.

Well its just a difference of opinion between us. please no hard feelings.

Dear Shailendra,

I am not hurted because of your comment on me but you know nobody is going to follow wrong practice just because of we said. I take everything on positive and moreover i should keep in my mind before commenting.

All together negative comments are for betterment if we really want to improve and you know we both are students and not experts.

Dear Shailendra

This is reference to your following querry

F.Y. 07-08 TDS applicable

F.Y. 08-09 TDS not applicable

 if transporter has given you bill in F.Y 08-09 to avoid deducting TDS then what will you do??

Dear if for F.Y. 07-08 transport contract work has been done then eventhogh bill not received by you, you should make provision on 31st march and Tax should deducted on 31st march 2008. If you not make provision in 07-08 then in accounting in FY 08-09 it will become prior period expenses .
 

If in FY 08-09 there is no requirement of deduction of TDS and you are going to account expenses in your books of accounts in 08-09 then there is no requirement of deduction of TDS.

Dear all,

When a provision is made for expenses TDS should be deducted.TDS is not based on when the service is provided. It is based on the Bill and payment date.

This case,it is prudent to deduct TDS when there is element of doubt.Because the company will face the following problems when TDS is not deducted:

1.The expenditure will be disallowed

2.Interest should be paid until TDS is recovered

3.Penalty=TDS amount

4.Worst of all:Imprisonment.

For the benefit of the client it should be suggested that TDS be deducted....

This is my view.....

I am totally agree with you Mr. Bimal but dont you think if we will brake it into two different financial year then the question will be different than the original question and accordingly answer will be changed??

i am agreed with Shudhanshu . When we are booking the expenses on 2/10/2009 then there is no question of deducting tds in given case . in case when f.y. changes  then we make provision and  credit the account of party therefore in that case we are liable to deduct Tax . in both the case we are deducting TDS on booking of entry  so in my view tds should not be deducted.

YES TDS SHOULD BE DEDUCTED.