TDS on Provisions
This query is : Resolved
24 April 2009
We are doing provision for Profesional Fees for the F Y 2008-09 as on 31.03.2009.
Yet we have not received the bill.
Whether we are liable to deduct tds on the same?
Yet we have not received the bill.
Whether we are liable to deduct tds on the same?
24 April 2009
TDS is deductible at the time of crediting Party account or making advance payment whichever is earlier.
So in your case the TDS is deductible.
So in your case the TDS is deductible.
24 April 2009
Please understand , we are making provision only & not crediting to the parties account.
Now applicable or not?
Now applicable or not?
27 July 2025
Excellent clarification — this gets to the heart of a very **practical accounting issue**: whether **TDS is applicable on general provision entries**, especially when **vendor names are not known or not credited**.
---
## ✅ Short Answer:
> **If you are NOT crediting any specific party's account (i.e., no identified vendor), then TDS is *not* required at the time of provision.**
---
## 🧾 Why?
As per **Section 194J** (and other TDS sections like 194C, 194I):
> “TDS must be deducted at the time of **credit of such income to the account of the payee** or at the time of payment… whichever is earlier.”
### 📌 The key phrase is: **“to the account of the payee”**.
If you are passing a **general provision** like:
```
Professional Expenses A/c Dr ₹50,000
To Provision for Expenses A/c ₹50,000
```
* There is **no identifiable payee/vendor**.
* You are not crediting a party account.
* This is a **general year-end accrual** with **no invoice and no name**.
➡️ **TDS is *not* required at this stage.**
---
## ✅ When will TDS become applicable?
When you do **any one of the following:**
1. Receive the **invoice** and credit the **vendor’s account**
2. Make a **payment** to the vendor
3. Record the actual **expense in name of the payee**
At that point, TDS must be deducted and deposited.
---
## 🚫 Common Mistake:
Some companies deduct TDS on **general provisions** made without payee name — this causes issues:
* In **Form 26Q**, you must report **PAN of deductee**
* You **can’t file TDS return** for an expense with no vendor name
* Credit doesn’t reflect in any vendor’s **Form 26AS**
---
## ✅ Practical Suggestion:
| Situation | TDS Applicable? | Notes |
| --------------------------------------------- | --------------- | -------------------- |
| Provision with **named vendor** (e.g., Mr. A) | ✅ Yes | TDS must be deducted |
| General provision with **no vendor name** | ❌ No | TDS not required yet |
| Payment or credit to vendor made later | ✅ Yes | Deduct TDS then |
---
### 📘 Example:
**Wrong way (general provision):**
```
Professional Fees A/c Dr ₹50,000
To Provision for Expenses ₹50,000 ← No TDS required here
```
**Right way (with vendor):**
```
Professional Fees A/c Dr ₹50,000
To Mr. A ₹45,000
To TDS Payable ₹5,000 ← TDS required here
```
---
## ✅ Conclusion:
> If you **don't credit the vendor's name**, and only make a general provision, **TDS is not applicable at that stage**.
> TDS will apply **only when a specific party is credited or paid**.
Let me know if you want a sample **TDS tracking sheet** for year-end provision follow-up.
---
## ✅ Short Answer:
> **If you are NOT crediting any specific party's account (i.e., no identified vendor), then TDS is *not* required at the time of provision.**
---
## 🧾 Why?
As per **Section 194J** (and other TDS sections like 194C, 194I):
> “TDS must be deducted at the time of **credit of such income to the account of the payee** or at the time of payment… whichever is earlier.”
### 📌 The key phrase is: **“to the account of the payee”**.
If you are passing a **general provision** like:
```
Professional Expenses A/c Dr ₹50,000
To Provision for Expenses A/c ₹50,000
```
* There is **no identifiable payee/vendor**.
* You are not crediting a party account.
* This is a **general year-end accrual** with **no invoice and no name**.
➡️ **TDS is *not* required at this stage.**
---
## ✅ When will TDS become applicable?
When you do **any one of the following:**
1. Receive the **invoice** and credit the **vendor’s account**
2. Make a **payment** to the vendor
3. Record the actual **expense in name of the payee**
At that point, TDS must be deducted and deposited.
---
## 🚫 Common Mistake:
Some companies deduct TDS on **general provisions** made without payee name — this causes issues:
* In **Form 26Q**, you must report **PAN of deductee**
* You **can’t file TDS return** for an expense with no vendor name
* Credit doesn’t reflect in any vendor’s **Form 26AS**
---
## ✅ Practical Suggestion:
| Situation | TDS Applicable? | Notes |
| --------------------------------------------- | --------------- | -------------------- |
| Provision with **named vendor** (e.g., Mr. A) | ✅ Yes | TDS must be deducted |
| General provision with **no vendor name** | ❌ No | TDS not required yet |
| Payment or credit to vendor made later | ✅ Yes | Deduct TDS then |
---
### 📘 Example:
**Wrong way (general provision):**
```
Professional Fees A/c Dr ₹50,000
To Provision for Expenses ₹50,000 ← No TDS required here
```
**Right way (with vendor):**
```
Professional Fees A/c Dr ₹50,000
To Mr. A ₹45,000
To TDS Payable ₹5,000 ← TDS required here
```
---
## ✅ Conclusion:
> If you **don't credit the vendor's name**, and only make a general provision, **TDS is not applicable at that stage**.
> TDS will apply **only when a specific party is credited or paid**.
Let me know if you want a sample **TDS tracking sheet** for year-end provision follow-up.
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