Treatment of Year end provision for expenses

This query is : Resolved

Sachin (Querist)
Follow

05 June 2009 As provisions are made on estimated basis they are not accurate. I want to know whether the year end provision is to be reversed in the next year or the bills are to booked against them.

Also as TDS is also applicable on provisions then how to make their payment.

ASHISH YADAV

ASHISH YADAV (Expert)
Follow

09 June 2009 They are only on the estimated basis more or less.

But the accruals should be not less in the amount.

the bills to be booked against them are traditional ways i.e if there is amount of accruals are less. either best way is to reverse whole accruals in the next month.

accruals may be for operating expenses or direct expenses. operating expenses accruals can be directly cancelled with the bills

Sachin

Sachin (Querist)
Follow

11 June 2009 Thanks, for the solution but what about the TDS treatment which were deducted and deposited on Provisions.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
Follow

02 August 2025 Great question on year-end provisions and TDS! Here's a detailed explanation:

---

### 1. **Year-End Provisions for Expenses**

* Provisions are **estimated liabilities** recognized for expenses incurred but not yet billed or paid.
* At year-end, you create a provision based on the best estimate.
* In the **next financial year**, when actual bills/invoices are received:

* You **reverse the provision** made earlier (to avoid double counting).
* You then **record the actual invoice** amount.

**Example:**

| At year-end (provision) |
| -------------------------- |
| Expense A/c Dr. |
| Provision for Expenses Cr. |

| When actual bill received |
| -------------------------- |
| Provision for Expenses Dr. |
| Vendor / Expense A/c Cr. |

---

### 2. **Treatment of TDS on Provisions**

* Normally, **TDS (Tax Deducted at Source)** is required to be deducted when payment is made or credit is given to the vendor/contractor etc.
* However, **TDS on mere provisions is not applicable** because the payment is not yet due or credited.
* TDS must be deducted **only on actual payment or on crediting the liability** (i.e., when the bill/invoice is received and accounted for).

---

### 3. **What if TDS is deducted and deposited on provisions?**

* This is a **mistake** because TDS should not be deducted on estimated provisions.
* You should:

* **Reverse the TDS** deducted on provisions in your books.
* Adjust the TDS amount when actual payment is made.
* Rectify TDS returns (if already filed) to reflect correct amounts.

---

### Summary Table

| Issue | Treatment |
| --------------------------------------- | ----------------------------------------------------------------- |
| Provision for expenses | Estimated amount; booked at year-end |
| Bills/invoices received next year | Reverse provision; book actual bill |
| TDS on provision | Not applicable on provision; deduct TDS on actual invoice/payment |
| If TDS deducted on provision mistakenly | Reverse TDS deduction; adjust when actual payment occurs |

---

### Practical Tip:

* Avoid deducting TDS on provisions.
* Maintain clear records to reconcile provisions and actual bills.
* Coordinate with your tax consultant/accountant to file correct TDS returns.

---

If you want, I can help you draft journal entries or TDS adjustment entries for your specific case. Would you like that?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now