Free items received, where to debit in accounts, TDS u/s 194R

Sir/Madam/Experts

Please guide on this:

Free stock item received with other stock item (like one free for one) but product is different.

Stock item accounted as free in purchase, free in sales too with same stock item.

Now TDS u/s 194R paid by supplier on total value of that free stock, so we have to show that value as income to claim TDS, we cannot ignore it as it is showing in 26AS TDS amount.

If we show it as income as free gift, then question is where to debit it in books, as it is not payable to anyone.

Say free items value is Rs.1000.

I will credit it as gift income in P/L account, Rs.1000.

But where to debit it in books? The amount is not payable to anyone.

Replies (2)
Quick Summary
This discussion addresses the accounting treatment for free stock items received, particularly when TDS under Section 194R has been paid by the supplier. The core issue is how to record the value of these free items as income in the books to claim the TDS credit, as it's not a payable amount. The suggested solution involves debiting a capital reserve or a specific 'Gifts Received' reserve account and crediting it to gift income in the P&L account.

When you receive a free gift, you need to account for it in your books. Since it's not payable to anyone, you can't debit a payable account. Instead, you can debit a capital reserve account or a specific reserve account created for this purpose. Here's the journal entry: Debit: Capital Reserve/Capital Account (Rs. 1000) Credit: Gift Income (Rs. 1000) Alternatively, you can also create a specific reserve account like "Gifts Received" or "Free Items Reserve" and debit that account instead of the capital reserve account. By doing this, you're recognizing the value of the free gift as a non-operating income in your Profit & Loss account and offsetting it with a corresponding increase in your capital reserves. This way, your books will reflect the true financial position of your business.

Thank your Mr. Rama Chary Rachakonda Sir,

your reply is very clear and useful.

 

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