Accounting for tds deduction for payments outside india

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

06 June 2012 Dear All,

The case is as under :

TDS is deducted and booked on the day of receiving Bill from foreign party based on exchange rate prevailing on the date of booking.

Later on TDS practically gets deducted on the date when the actual payment to foreign party is made and also the exchange rate prevailing on the date of payment would be diferrent.

Since Accounting needs to be done when the bill is recd and TDs needs to be converted in Rupee at the time of booking, the problem arises when the said TDs is deducted on the date of actual payment thus resulting into foreign exchange difference on account of TDS and the interpretation can be justified is that the % deduction would not remain effectively as 20%(say for e.g), It may go beyond/below 20%.

Kindly suggest the proper time as to
accounting of TDS.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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06 June 2012 Consider an example.

Invoice amount $1 lakh.
Calculate TDS in USD @ 20% = 20,000
Exchange rate = Rs. 50

Entry:

Expense A/c Dr 50 lakh
To Creditor 40 lakh
To TDS Payable 10 lakh

Now you have to pay $ 80,000 to the party. TDS will remain Rs. 10 lakhs only.

Now on the date of payment, exchange rate is Rs. 55

Entry:

Creditor A/c Dr 40 lakh
Foreign Exchange Fluctuation A/c Dr 4 lakh
To Bank A/c 44 lakh

TDS amount will NOT be affected by change in exchange rate. The difference is EXCHANGE LOSS/GAIN.

Message likes : 2 times

Ca Anand Dubey

Ca Anand Dubey (Expert)
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06 June 2012 deduct tds on the date of booking and deposit it . while making remittance you don,t need to deposit tds again whatever the rate of dollar would be, it doesnot impact your tds liability.suppose bill is for 100 usd, and you deducted 20 usd @ 20% and deposited the same after converting in to rupees, Now you have to remit only 80 usd and exchange fluctuation will be calculated on 80 usd as you are remitting only 80 usd

Message likes : 1 times

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Querist : Anonymous

Querist : Anonymous (Querist)

06 June 2012 Thank You Sirs..