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With holding tax problem

sanjeev (govt. Emloyee) (565 Points)

06 October 2012

Dear Sir,

We are making payment to foreign supplier in EURO.While making payment we have first to deposit With holding Tax . For Example on Total payment of EURO 1,00,000 the With holding Tax is Euro 10,000 and Net payment to party is Euro 90,000. withholding Tax is deposited on 220812 while Exchange rate was Rs 66/- per Euro .While making payment on 25.08.12 to party the Exchange3 rate was Rs 67/-per Euro.we are taking Payment basis as transaction date. and diff of Rs 1/- (Rs67-Rs66)that works to Rs 10,000/- is accounted as exchange rate variation. Entry is Dr Expenses 67,00,000 Cr TDS 6,60,000 Cr party 60,30,000 Cr Exchange rate variation 10,000 May please advise we are doing correct accounting. <br> Regards <br> Sanjiv

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MD (AAA) (117 Points)
Replied 09 October 2012

Hi,

Deduction of income tax shall be at the time of credit or payment thereof whichever is earlier as per provisions of section 195(1).

In my view the correct accounting entries should be as follows:

Date	Particulars		Amount in INR		Amount in Euro
22-Aug-12	EXPENSES	DR	66 00 000		1 00 000
	TO VENDOR	CR		66 00 000		1 00 000

22-Aug-12	VENDOR	DR	6 60 000		10 000
	TO WHT	CR		6 60 000		10 000

25-Aug-12	VENDOR	DR	59 40 000		90 000
	FOREIGN EXCHANGE	DR	90 000			90 000
	TO BANK	CR		60 30 000