Security deposit

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VIDYASHREE VIDYA (Querist)

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)

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)

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.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

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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