Security deposit

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VIDYASHREE VIDYA (Querist)
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01 April 2019 Hi Everyone,

Question for the day.

Basically, our company is a railway infrastructure co., where we undertake railway contracts, before we receive the contract we need to pay 10% of contract value as a deposit, out of that 2% will be paid by us & balance 8% will be deducted by railways at the time of generating invoice, now my question is that 8% is to be considered as sales or it should be treated as deposit only?

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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01 April 2019 Deposit recovered From Sales , the portion first consider as sales , Realised outcome to be treated as Deposit

VIDYASHREE VIDYA

VIDYASHREE VIDYA (Querist)
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01 April 2019 But In every bill generated by railways, they show the actual sales then deduct balance security deposit & TDS in that where that deposit will be credited to us after a year. The amount paid by them once sales have done is the value after deducting TDS & deposit which is immediately after the generation of bills.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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23 July 2025 Your situation pertains to how to account for the 8% security deposit withheld by Indian Railways from your invoices, in relation to a railway infrastructure contract. Let's clarify how to treat this correctly from both accounting and tax perspectives.

🔍 Key Points:
Total contract value = 100%

2% paid upfront by your company

8% withheld from each invoice raised by you (from your payment) by the Railways as security deposit

Invoices reflect full contract value (gross sales), but payments are made net of 8% security deposit and TDS

The 8% is refundable after a year (post-completion or based on terms)

🧾 Accounting Treatment:
✅ The 8% withheld is NOT part of sales. Here's why:

The gross invoice amount is already considered sales revenue (as per contract performance).

The 8% deduction is not an expense, nor a reduction in sales.

It is a contractually refundable security deposit, hence it should be recorded as a current asset (receivable).

📘 Journal Entry at Time of Invoicing:
Suppose your invoice is for ₹1,00,000.

At the time of raising the invoice:

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Accounts Receivable A/c Dr. 1,00,000
To Revenue (Sales) A/c 1,00,000
At the time of receiving payment (8% deposit and TDS withheld):

Assuming 8% deposit = ₹8,000, and TDS = ₹2,000:

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Bank A/c Dr. 90,000
Security Deposit with Railways A/c Dr. 8,000
TDS Receivable A/c Dr. 2,000
To Accounts Receivable A/c 1,00,000
The ₹8,000 is shown under Current Assets as Security Deposit (Recoverable).

It will be reversed when the Railways refunds it.

💡 Summary:
✅ 8% is a deposit, not sales or expense.

✅ You should account for the full invoice value as sales.

✅ The 8% is a recoverable deposit shown under loans & advances or other current assets.

🧾 Keep documentation (contract terms, refund schedule) to support audit/tracking.

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