TDS journal entry
A synopsis of the TDS Journal Entry
In this post, we will discuss TDS journal entries and explain how to record tax deductions at source in your accounting books.
Let’s look at each section:
What is a TDS Journal Entry?
A TDS journal entry records the transaction when TDS is deducted or paid. It helps organisations comply with tax rules and provides a clear view of their tax payments and liabilities.
Importance of TDS Journal Entries
- Compliance: Correct TDS entries help businesses follow tax laws.
- Transparency: Recording TDS transactions ensures accurate financial statements.
- Audit Trail: Proper TDS entries create an audit trail for tax compliance.
- Avoiding Penalties: Accurate entries prevent penalties and interest from late deductions or filings.
Types of TDS Journal Entries
There are two main categories into which TDS transactions fall into:
- TDS Payable Journal Entry
- TDS Receivable Journal Entry
TDS Payable Journal Entry
TDS payable refers to the tax deducted from certain payments, which is owed to the Income Tax Department on behalf of the service provider. It is considered a liability because it needs to be paid to the Income Tax Department.
Example of TDS Payable Journal Entry
Assume a business pays a contractor ₹100,000, and a TDS of 1% is deducted.
1. Recording Expense and TDS Deduction
Journal Entry:
|
Account |
Debit (₹) |
Credit (₹) |
|
Contractor Expense |
100,000 |
|
|
TDS Payable |
1,000 |
|
|
Bank/Cash |
99,000 |
In this entry, the contractor expense account is debited ₹100,000 for the total expense. The TDS payable account is credited ₹1,000 for the tax deducted, and the bank or cash account is credited ₹99,000, which reflects the net payment to the contractor.
- Payment of TDS to the government
When the TDS is paid to the government, the TDS payable account is closed.
Journal Entry:
|
Account |
Debit (₹) |
Credit (₹) |
|
TDS Payable |
1,000 |
|
|
Bank/Cash |
1,000 |
This entry reduces the TDS payable on the liability side and increases the bank/cash account by ₹1,000, which shows the payment of TDS to the government.
TDS Receivable Journal Entry
TDS receivable refers to the amount deducted by the payer as TDS (Tax Deducted at Source) and later deposited to the Income Tax Department.
Example of TDS Receivable Journal Entry
Let’s say a business earns ₹100,000 from a client, and a 10% TDS is deducted.
Journal Entry:
|
Account |
Debit (₹) |
Credit (₹) |
|
Bank/Cash |
90,000 |
|
|
TDS Receivable |
10,000 |
|
|
Income |
100,000 |
The business receives ₹90,000, so the bank/cash account is debited with that amount. The TDS receivable account is debited with ₹10,000, representing the TDS deduction. The income account is credited with the full income of ₹100,000.
Adjustment of TDS Receivable Against Tax Liability
When the TDS is adjusted against the tax payable, the tax liability account is debited by ₹10,000, reducing the tax owed, and the same amount credits the TDS receivable account.
Journal Entry:
|
Account |
Debit (₹) |
Credit (₹) |
|
Tax Liability |
10,000 |
|
|
TDS Receivable |
10,000 |
Journal Entry for TDS on Purchase
The transaction must be properly recorded when a business makes a purchase, which is subject to TDS. For example, if goods worth ₹200,000 are purchased with 1% TDS, the following journal entry is made:
Journal Entry:
|
Account |
Debit (₹) |
Credit (₹) |
|
Purchase |
200,000 |
|
|
TDS Payable |
2,000 |
|
|
Bank/Cash |
198,000 |
Here, the purchase account is debited with ₹200,000 for the total cost of goods. The TDS payable is credited with ₹2,000, representing the tax deducted at source. The bank or cash account is credited with ₹198,000, the net payment made to the supplier.
We have reached the end of this post. Please share your queries with us in the comment section below.
FAQs
Q: How do you pass a TDS journal entry?
A: Calculate the TDS amount to pass a TDS journal entry, then record it in your accounts. For example, if you’re deducting TDS from a payment to a vendor, debit the expense account, credit the TDS payable account, and credit the remaining payment to the bank or cash account.
Q: How do you pass journal entries for TDS deduction?
A: To record a TDS deduction, follow these simple steps:
- Determine the total amount of expense or income.
- Calculate the TDS to be deducted.
- Debit the relevant expense or income account with the total amount.
- Credit the TDS payable account with the TDS amount.
- Debit the net payment from the bank or cash account.
