TDS for Invoice surplus

This functionality is specific for India.

Tax is deducted at source either on the payment for the service received or on receiving the invoice, which ever occurs earlier.

When an advance is paid to the business partner (service provider), the amount also includes a percentage of TDS amount. After receiving the invoice from business partner, the invoice amount must be paid to the business partner only after deducting the TDS amount on invoice, and the TDS amount on advance, if any. The TDS amount must be paid to tax authorities.

The financial postings of TDS for invoice surplus are explained with an example.

ABC is a business partner (service provider) to your organization. You must pay 1000 INR as advance to ABC and the amount includes a 5 percent of TDS amount. You receive an invoice from ABC later of the amount INR 10000 for actual services received. The net amount payable to ABC must be adjusted with the advance amount already paid.

Both the transactions include TDS amounts. The TDS advance amount must be adjusted or nullified with the net invoice amount (the amount after deducting the advance). The final impact is explained in the following postings.

The following are the tax postings of TDS for invoice surplus:

Step 1. On payment of advance INR 1000 with TDS @ 5% to Business partner ABC

Debit / Credit	Ledger account	Amount
Debit	TDS account	INR 50
Debit	ABC (Advance payment)	INR 950
Credit	TDS payable	INR 50
Credit	Cash	INR 950

Step 2. On receiving invoice from ABC for INR 100000

Debit / Credit	Ledger account	Amount
Debit	Services	INR 10000
Credit	ABC	INR 9500
Credit	TDS payable	INR 500

Step 3. On assignment of advance to invoice

Debit / Credit	Ledger account	Amount
Debit	ABC	INR 950
Debit	TDS Payable	INR 50
Credit	ABC (Advance payment)	INR 950
Credit	TDS account	INR 50

Step 4. Integration accounts for TDS payment

Debit / Credit	Ledger account	Amount
Debit	Anticipated payments	INR 950
Debit	Interim tax account	INR 50
Credit	Tax payable	INR 50
Credit	Anticipated cash	INR 950

At reconciliation of accounts

Debit / Credit	Ledger account	Amount
Credit	Anticipated payment	INR 950
Debit	Anticipated cash	INR 950
Debit	Advance payments	INR 950
Credit	Cash	INR 950