TIMING OF TDS ENRY IN BOOKS OF ACCOUNTS

TDS 213 views 2 replies
User Avatar

385 Points Joined June 2021

Should we account for TDS provision at the time of Bill processing [ recognizing liability] or payment time to vendor?

If at processing stage, often some deduction take place due to Some issues and vendor may refuse issuance of credit note.

Is there any prudent policy?

0 Reply Share Follow
On 17 January 2025 at 13:18 Report
Replies (2)
User Avatar

Master in Accounts & high court Advocate
9060 Points Joined December 2011

Accounting for TDS Provision There are two possible approaches:

1. *At the time of bill processing (recognizing liability)*: Recognize the TDS liability when processing the bill, even if the payment has not been made yet. This approach follows the accrual accounting principle.

 2. *At the time of payment to the vendor*: Recognize the TDS liability when making the payment to the vendor. This approach follows the cash accounting principle.

Prudent Policy Considerations When deciding on the approach, consider the following:

1. *Accrual accounting principle*: Recognizing TDS liability at the time of bill processing ensures that expenses are matched with revenues in the same accounting period.

 2. *Cash flow management*: Recognizing TDS liability at the time of payment can help manage cash flows, as the liability is only recognized when the payment is made.

3. *Vendor credit notes*: As you mentioned, recognizing TDS liability at the time of bill processing may lead to issues with vendor credit notes. Vendors may refuse to issue credit notes if the TDS liability has already been recognized.

4. *Tax compliance*: Ensure that the chosen approach complies with tax regulations and that TDS returns are filed accurately. Recommended Approach A prudent policy would be to recognize TDS liability at the time of bill processing, while also considering the potential issues with vendor credit notes.

To mitigate this risk: 1. *Clearly communicate with vendors*: Inform vendors about your TDS recognition policy and the potential impact on credit notes.

 2. *Obtain vendor acknowledgement*: Obtain acknowledgement from vendors that they understand the TDS recognition policy and will cooperate with credit note issuance.

3. *Regularly review and reconcile*: Regularly review and reconcile TDS liabilities with vendors to ensure accuracy and minimize disputes.

By adopting this approach, you can ensure accurate financial reporting, compliance with tax regulations, and effective management of vendor relationships.

Reply
On 17 January 2025 at 13:33
User Avatar

27928 Points Joined May 2017

Follow sec 194

Booking or payment whichever is earlier.

Even accruals is essential.

1 Reply
On 18 January 2025 at 09:31


CCI Pro

Leave a Reply

Post Reply

Your are not logged in . Please login to post replies

Click here to Login / Register  

Recent Threads

More recent discussions | Post

Related Threads
Loading