Tds u/s 194j
This query is : Resolved
28 June 2012
A company has undetermined professional fees at the end the year and hence it creates an approximate provision for the same and in the next yr it reverses the provision and creates fresh liability and deducts TDS on the same. What are the consequences the co needs to bear
28 June 2012
no consequences, its ok
30 June 2012
Does that mean the company will have to pay no interest on TDS. Because under TdS section it is mentioned that tds has to be deducted even if the amount is credited to suspense account
02 August 2025
This is a very insightful question — and you’re absolutely right to question whether **TDS needs to be deducted on provisional entries** under **Section 194J**.
Let’s address this carefully:
---
## ✅ **Scenario Recap:**
* A company makes a **provision** for professional fees on **31st March** (say, ₹5,00,000), but doesn’t know the exact payee.
* **No TDS is deducted** at that time.
* In the **next financial year**, provision is **reversed**, and actual invoices are booked.
* **TDS is deducted** at that later time (when payee is known).
---
## ⚖️ **Legal Position:**
### 🔸 As per Section 194J (and other TDS provisions):
> TDS is to be deducted **at the time of credit** of such income to the account of the payee **or to any other account** (including suspense or provision account), **whichever is earlier**.
📌 This means:
Even if you're **not crediting a named payee**, but **creating a provision**, **TDS must be deducted** at that point — unless payee identity is truly unknown.
---
## ⚠️ **If TDS is not deducted on 31 March** (on provision), what are the **consequences?**
### 1. **Interest Liability (Section 201(1A)):**
* TDS not deducted → Interest at **1% per month** (or part of month) from **date it should have been deducted to actual deduction**.
### 2. **Disallowance of Expense (Section 40(a)(ia)):**
* If TDS not deducted in the year of expense, **30% of such expense** is **disallowed** as a deduction.
* It can be allowed in the year when TDS is eventually deducted and paid.
---
## 🧾 **CBDT Clarification – Circular No. 8/2009 (dated 24 Nov 2009):**
> If **provisions are made at year-end without identifying the payees**, and TDS is deducted in the **subsequent year when payees are identified**, then:
* **No disallowance under Section 40(a)(ia)** in first year
* BUT **interest under Section 201(1A)** is **still applicable**
✅ This provides relief on disallowance
❌ But **doesn’t protect from interest liability**
---
## ✅ **Conclusion:**
| Issue | Outcome |
| ------------------------------------------------ | ------------------------------------------------------ |
| Provision made on 31 March without deducting TDS | ❌ Not compliant |
| TDS deducted next year when payee identified | ✅ Acceptable, but **interest applies** |
| Disallowance of expense? | ❌ No, if CBDT Circular followed and TDS deducted later |
| Interest under Section 201(1A)? | ✅ Yes, **1% per month or part thereof** |
---
## 💡 Suggested Practice:
* If payee is **known**, always deduct TDS at the time of **provision**.
* If payee is **genuinely unknown**, document it and deduct TDS when actual invoice is booked — but **pay interest** voluntarily to avoid penalties.
Let me know if you want a **sample working for interest calculation** or a **note for internal audit purposes**.
Let’s address this carefully:
---
## ✅ **Scenario Recap:**
* A company makes a **provision** for professional fees on **31st March** (say, ₹5,00,000), but doesn’t know the exact payee.
* **No TDS is deducted** at that time.
* In the **next financial year**, provision is **reversed**, and actual invoices are booked.
* **TDS is deducted** at that later time (when payee is known).
---
## ⚖️ **Legal Position:**
### 🔸 As per Section 194J (and other TDS provisions):
> TDS is to be deducted **at the time of credit** of such income to the account of the payee **or to any other account** (including suspense or provision account), **whichever is earlier**.
📌 This means:
Even if you're **not crediting a named payee**, but **creating a provision**, **TDS must be deducted** at that point — unless payee identity is truly unknown.
---
## ⚠️ **If TDS is not deducted on 31 March** (on provision), what are the **consequences?**
### 1. **Interest Liability (Section 201(1A)):**
* TDS not deducted → Interest at **1% per month** (or part of month) from **date it should have been deducted to actual deduction**.
### 2. **Disallowance of Expense (Section 40(a)(ia)):**
* If TDS not deducted in the year of expense, **30% of such expense** is **disallowed** as a deduction.
* It can be allowed in the year when TDS is eventually deducted and paid.
---
## 🧾 **CBDT Clarification – Circular No. 8/2009 (dated 24 Nov 2009):**
> If **provisions are made at year-end without identifying the payees**, and TDS is deducted in the **subsequent year when payees are identified**, then:
* **No disallowance under Section 40(a)(ia)** in first year
* BUT **interest under Section 201(1A)** is **still applicable**
✅ This provides relief on disallowance
❌ But **doesn’t protect from interest liability**
---
## ✅ **Conclusion:**
| Issue | Outcome |
| ------------------------------------------------ | ------------------------------------------------------ |
| Provision made on 31 March without deducting TDS | ❌ Not compliant |
| TDS deducted next year when payee identified | ✅ Acceptable, but **interest applies** |
| Disallowance of expense? | ❌ No, if CBDT Circular followed and TDS deducted later |
| Interest under Section 201(1A)? | ✅ Yes, **1% per month or part thereof** |
---
## 💡 Suggested Practice:
* If payee is **known**, always deduct TDS at the time of **provision**.
* If payee is **genuinely unknown**, document it and deduct TDS when actual invoice is booked — but **pay interest** voluntarily to avoid penalties.
Let me know if you want a **sample working for interest calculation** or a **note for internal audit purposes**.
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