In this article we will provide the information about Journal Entries for TDS. Tax Deducted at Source, is a crucial concept in taxation.
When tax is deducted from an individual’s income and deposited into the Government’s account, accounting entries are necessary.
Let’s illustrate this with an example involving ABC Company and Mr. N Person in the contest of Journal Entries For TDS
In the Books of ABC Company:
- Payment with TDS Deduction:
Debit Indirect Expense Account
Credit Mr. N Person Account
Credit TDS of Mr. N Person Account
Explanation with an Example:
Imagine ABC Company needs to pay Rs. 100,000 as rent to Mr. A Person, with a TDS of Rs. 5,000. The net liability for Mr. N Person is Rs. 95,000, and the TDS liability is Rs. 5,000. Since rent is an indirect expense, we debit it with Rs. 100,000.
Following the law, we divide the total amount between the assessee (Mr. N Person) and the Government.
Rent Account Debit 1,00,000
Mr. N Person Account Credit 95,000
TDS Credit 5,000
Before the actual payment to the creditor for expenses and TDS, both will be shown on the liability side of the balance sheet.
Liability Side of Balance Sheet:
Mr. N Person Account (Creditor for Rent) = Rs. 95,000
TDS = Rs. 5,000
- Payment to Creditor with TDS:
Debit Mr. N Person Account 95,000
Debit TDS Account 5,000
Credit Bank Account 1,00,000
In the Books of Mr. N Person (Assessee):
- When Earnings from Rent are Due:
Debit ABC Company Account 95,000
Debit TDS 5,000
Credit Rent Account 1,00,000
- When Assessee Receives the Net Rent Amount:
Debit Bank Account 95,000
Credit ABC Company Account 95,000
- When Government Refunds TDS to Assessee:
When Mr. N Person files his regular income tax return and receives a refund of some of his TDS, let’s say Rs. 1,500:
Debit Bank Account 1,500
Credit Refund of TDS 1,500
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JOURNAL ENTRIES WITH EXAMPLES (2024)- TO BECOME MASTER
CONCLUSION ON JOURNAL ENTRIES FOR TDS
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