As per Income Tax Act,the payee i.e the Company XYZ need to deduct TDS from the payers payment & pay to the government.
TDS need to be deducted at the time of invoice booking or at the time of advance payment whichever is earlier.
Example :
Say we have appointed one consultant to provide legal services for Rs.100,000/=.We need to pay him Rs.40,000/= immediately ( say on 01.05.2015) as an advance & remaining amount i.e Rs.60,000/= will be paid after completion of service (say on 25.05.2015) .The TDS rate is 10%.The entries of this transaction will be as under:
1. At the time of making advance payment of Rs.40,000/=
Date of Transaction : 01.05.2015
Mr Professional & Co. a/c Dr 40,000
TDS on Professional Fees @ 10% Cr 4000
Bank a/c Cr 36000
(Narration : Being advance paid to Mr Professional & Co. for rendering consultancy services)
ENTRY PASSED THROUGH BANK PAYMENT
1. After completion of service on 25.05.2015.Mr Professional & Co. will issue the final bill of Rs.1,00,000/=.The Company i.e xyz need to book this bill & recognise the expenses of Rs.100,000.The TDS on this bill will be Rs.10,000/= however the company i.e xyz has already deducted TDS of Rs.4,000/= at the time of making advance payment on 01.05.2015,the company will deduct only Rs.6,000/= (10,000-4000) while booking the bill/expenses. The entries of this transaction will be as under:
Date of Transaction : 25.05.2015
Professional fees (Expenses) a/c Dr 1,00,000
TDS on Professional Fees @ 10% Cr 6000
Mr Professional & Co. a/c Cr 94000
(Narration: Being Professional fees twds Consultancy Services)
ENTRY PASSED THROUGH PAYMENT JOURNAL AS
1. Settlement of Payment
Date of Transaction : 26.05.2015
Mr Professional & Co.a/c Dr. 54000
Bank a/c Cr 54000
(Narration : Being final payment made toward Consultancy fees )
ENTRY PASSED THROUGH BANK PAYMENT
Issue :
1. Entry # 1 passed through Bank Payment .Tax entry generated & Correctly posted in TDS reports.
2. Entry # 2 – Unable to pass this entry through Bank Payment as TDS figure is directly calculated by system @ 10% i.e Rs.10,000/= .However in this transaction we have to deduct only Rs.6000/= as Rs.4000/= already have been deducted at the time of payment.We raise this query with friends group they suggested us to pass this entry through Payment Journal (as there is no restriction on TDS % ,we can take any figure of TDS in Payment Journal) And accordingly we are doing this since last 7 to 8 months.Now when we approaches to friends group to share the various report of TDS,the entries which are routed / passed through Payment Journal are not reflecting in TDS Report.
Attaching herewith scan copy of one voucher for ur ready reference.In this voucher we are making payment of Rs.1,35,000 .The payment detail is under:
We are making payment of one old bill Of Rs.67,5000 (on which TDS is already deducted at the time of bill booking) & making payment of advance of Rs.75000/= on which we need to deduct TDS @ 10 i.e Rs.7,500/=.Therefore the net payment is :
Old Bill Rs.67500/=
Advance Rs.75,000
Less : TDs @10% Rs. 7,500 Rs.675000/=
Rs.1,35,333/=