Audit entry

Got it! Here’s how to handle this:

Scenario:

• In FY 2023-24, your Company A received TDS on payments made to Vendor (Company B).

• In FY 2024-25, Company B raised a credit note (reducing the invoice amount), which impacts the TDS already deducted.

Accounting Entries:

At the time of original payment and TDS deduction (FY 2023-24):
(Assuming invoice amount Rs X, TDS @ Y%)

• Debit: Expense Account (Full Invoice amount) — Rs X

• Credit: Vendor Payable — Rs X

• Debit: Vendor Payable — Rs X

• Credit: Bank/Cash (Net amount after TDS) — Rs (X - TDS)

• Credit: TDS Receivable (or TDS Payable) — Rs (TDS amount)

Now, in FY 2024-25, credit note reduces the invoice amount (say by Rs Z):

• Debit: Vendor Payable — Rs Z

• Credit: Expense Account (or relevant purchase account) — Rs Z

For adjustment of TDS (since tax was deducted on higher amount):

• Debit: TDS Receivable (or TDS Payable) — Rs (TDS on Rs Z)

• Credit: Vendor Payable — Rs (TDS on Rs Z)

This reflects that TDS needs to be adjusted because the actual payment has been reduced.

Explanation:

• You reduce the vendor payable by the credit note amount.

• You also adjust TDS receivable/payable accordingly for the difference due to credit note.

• If the TDS was already deposited, you may claim refund or adjustment from the tax authorities.