Tds on payments made in instalments to the creditor

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This query is : Resolved

Ranganathan K (Querist)

07 November 2012 Dear Sirs,

I draw your kind attention for the TDS deduction methodology in the below service contract transaction.

For e.g., Our company agrees for Professional service contract for a sum of Rs. 1 crore with the creditor with the agreed payment terms, like:

1. Advance 10% on signing the contract
2. 30% on delivery of Phase-I
3. 30% on delivery of Phase-II
4. Final 30% on delivery of Phase-III

In that case, the creditor raises his service invoice straightaway for Rs.1crore in favour of our company.

What I do is, I am deducting TDS only on the payments actually made to the creditor.

I mean, not on the 100% service invoice value. Only based on the payment disbursements.

I mean TDS on 10% Advance payment, 30% on Phase-I, 30% on Phase-II etc., when the amounts were actually disbursed.

The reason why I am not deducting the TDS on entire service value is that "some times the contract gets cancelled" due to unforeseen circumstances. And the parties settles back the advance payment paid or received.

Is this right? or do I have calculate TDS on the entire value of the service invoice and remit it?

Kindly advise.

Thanks and regards,
Ranganathan.K

Anand Modi

Anand Modi (Expert)

07 November 2012 In my opinion and as per the circumstances of your case you should ask the party to revise the bill amount as per installation otherwise TDS is required to be deducted on Full 1 Crore.
Because as per section 194J it is clearly mentioned that TDS should be deducted at the time of Credit of such sum to the account of payee or at the time of payment whichever is earlier

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