Provision of audit fees with tds and gst credit

Dear, 

While Making provision at year end the entry would be 

Audit fees exp    Dr.     50000

   To TDS on Professional Fees    5000

  To  Audit Fees payable              45000

Current year entries

for payment of TDS 

TDS on professional Fees    Dr     5000

   To Bank                                                     5000

Bill received with 9000 ITC GST

Entries as for reversal First

Audit fees payable Dr.      50000

     To Audit Fees Exp.            50000

Pass the Correct Invoice 

Audit fees Exp.    Dr.  41000

GST                     Dr.  9000

       To  Auditor A/c           50000

(Narraton as TDS would not be deducted because already deducted on provision )

Auditor A/c     Dr.             50000

   TO Bank                              45000

  TO  Audit Fees payable         5000                     

(Payment entry would be as )

On the Basis of Entries accounted as above you will see that Audit fees exp has been reduced with Rs equal to GST Credit which was not booked in Last year. simultaneously Audit Fees payable Ledger & Auditors A/c also being have been sett off.

dear sir

i want to make provision for profeesional fees what entry should i pass in tally plz help me out

For Provision 

Audit Fees A/c       Dr. 50000

       To Auditor                 45000

       To TDS payble           5000

On receipt of Invoice

Auditor A/c Dr        45000

CGST         Dr          4500

SGST         Dr           4500

      TO bank A/C             54000

As per my point of View, Whenever such provision entries are made it is for satisfying matching principle of accounting. That the expenses should be related to the FY of the accounts prepared and income earned. Hence, expenses are booked and provided on 31st march for which bills will be received later.

But the thing is such entries are unnecessarily complicated with tax provisions relating to TDS and GST.

We must understand the difference between Creditors and Provisions.

Creditors are real accounts and provision for expenses are nominal account. Creditors should be booked only when a bill is recieved because unless a bill is recieved one cannot ask for payment. Creditors are confirmed amount while provision is an estimate. When we make any provision we are not liable to pay the party it is just a provision.

for example, when accounting services are recieved for Jan to Mar 2018 for Rs 25000/-and a bill is recived in april 2018.

Then expenses should be provided only for Rs 25000 

accounting fees (P/L) a/c                                             Dr           25000

       To accounting fees payable a/c (provision)                                       25000

and when actual bill is recived  then in April which may be higher or lower of amt provided then the entry will be

Accounting fees payable a/c                                Dr          25000

 GST a/c                                                               Dr            4500

          To Tds                                                                                            2500

           To creditor                                                                                   27000

TDS liability comes only when the amt is credited or paid to party account whichever earlier.

Also, GST Setoff is available only when a bill is recieved.

Further, the 30% expense will not be allowed under income tax provisions as TDS is not allowed but will be allowed later in next FY in which the tds is deducted and paid. It may also have effect on defferred tax working.

I hope the above explanation will help.

But its also written in tds provision that credit can be in what so name possible even suspense account so that the reason tds should be deducted on provision entries

https://www.in.kpmg.com/taxflaashnews/KPMG-Flash-News-Destimoney-Enterprises-Limited-2.pdf

Here is the full wite up

I almost agree with Rupash except the accounting part.

Accounting at the year end shall be:

accounting fees  a/c                                             Dr           25000    

   To TDS on Professional Fees                                                              2500

   To accounting fees payable a/c                                                           22500

This will help us in completing all the compliance procedure and accrual basis of accounting.

At the time of actual reciept of invoice following entries shall be made:

Accounting fees payable a/c   Dr          22500

GST a/c                                    Dr            4500          

            To creditor  A/c                                                        27000

Thus our payment liability towards TDS and creditors are outstanding till payment. GST credit is consiered. Expenses is booked on year end and provision entry is completely set off.

Hope the above is clear.

 

I have totally different opinion about Provisions and its accounting.

1. Without Bill/Invoice Expense entry can not be passed.

2. Provision is not an expense. So Provisions can not be in Profit and loss account in above line. Provision can be made out of profit and consider as below line.

3. All payment before Bill /  Invoice is called "advance payment" and after Bill called "paid to creditors"

4.  for Audit fees entries

31.03.2017     Profit and Loss A/c                            Dr.      25000
                                To Provision for Audit fees                                     25000
                       ( Provison for Audit fees is balancesheet Item )

30.09.2017     Provision for Audit fees  A/c               Dr.     25000
                                 To Profit and Loss A/c                                          25000 
                       ( Actual bill received dated 30.09.2017 now provison become liability )

30.09.2017    Audit Fees A/c                                    Dr.     25000
                       CGST                                                 Dr.      2250
                       SGST                                                 Dr.      2250
                       Out of Pocket Exp(lunch exp)            Dr.       500
                                 To Chartered Account Name                               27500
                                  To TDS Decucted                                                 2500
                       ( Bill No.   1234  dated 30.09.17 recorded )

30.09.2017    Chartered Account Name                  Dr.      27500
                                  To Bank A/c                                                        27500
                        ( Fees Paid )

31.03.2018    Profit and Loss A/c                            Dr.      35000
                                To Provision for Audit fees                                     35000
                       ( Provison for Audit fees is balancesheet Item )

5.  There may be excess provison or sort provision also.

6.   Purpose of Provisions is not to distribute profit to partners or transfer to reserve or issue dividend. In Income tax only specified provision are allwed to transfer to profit and loss account.

7.  As on balancesheet date i.e. 31.03.20xx  there is not any actual liability or creditors or payables. Its just shown in balancesheet separate head of provisions.  So making provision does not mean creating liabiity and booking expenses.

but this entry not pass in tally with effect in 3B itc claim

Can we create a Provision for GST payable in the Provisional Balance Sheet for the year ended 31st March, 2019?

An accrual for auditing services received should only be made when auditing services have been rendered and any outstanding balance is due.

TDS liability only comes in when the amount is paid/credited earlier, whichever happens first. 

There may be the excess provision or sort provision also.

 The purpose of Provisions is not to distribute profit to partners or transfer to reserve or issue dividends. In Income tax, only specified provisions are allowed to transfer to profit and loss account.

As on the balance sheet date i.e. 31.03.20xx  there is not an actual liability or creditors or payables. It's just shown in the balance sheet separate head of provisions.  So making provision does not mean creating liability and booking expenses.

 

SIMPLE ENTRY 

1. ON 31.03.2023

AUDIT FEES A/C DEBIT        100000/-

             TO PROVISION FOR AUDIT FEES                100000/- 

( NO TDS ENTRY NO GST ENTRY)

2. ON 01.04.2023 Reversal 

PROVISION FOR AUDIT FEES DEBIT         100000/-

                   TO AUDIT FEES                                            100000/-

(NO TDS NO GST)

3. WHEN AUDIT FEES BILL RECEIVED 

AUDIT FEES   A/C DEBIT                          100000/-

INPUT GST A/C  DEBIT                               18000/-

             TO          AUDITOR                                                   1180000/-  

THAN TDS ENTRY

AUDITOR   A/C DEBIT                     10000/- 

            TO   TDS PAYABLE                                      10000/-

WHEN PAYMENT 

AUDITOR   A/C DEBIT                     108000/- 

        TO   BANK                                                     108000/-