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Hi All,

Recently I have read the article on CAclubindia that TDS will be applicable on provision for expenses.

First we must understand that what is the provision for expenses we booked in the books of accounts.

As per AS 29, provision is the estimation of liability probability of which outflow will be 'more likely than not'. It means here we are confirmed that whether provision made by us outflow will be there, however the amount will be still unidentifiable. Hence, in this case we can't made credit to the party against whom we made the provision. Hence, from my knowledge there is no need to deduct the TDS in case of provision for expenses.

However if there is any outstanding expenses in relation to party, then here it is confirmed that the outflow of the amount is ascertainable and hence TDS provision will be applicable here.

For e.g.  Booking of expense for auditor is not provision for expenses, it is the outstanding expenses.

Also another example is that 'Interest accrued but not due' is the provision for expenses on which TDS is not to be deducted, however in case of ' Interest accrued and due' TDS provision will be applicable.

Also one of the best example is here:

"In one of the company, there has been dispute in the bill amount of the one of the party, and that was finalise at the month end of June. In this case, the company based on the best judgement of estimates, can book the provision for expenses in the month of March and then can book the bill at the time of finalisation of that particular bill and deduct the TDS at the time of booking of the bill."

I hope you understand the above concept.

Please reply to me if you people have any better knowledge in this regard.


CA Prabhakar Dubey

Published by

CA Prabhakar Dubey
(Chartered Accountants)
Category Income Tax   Report

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