(Tax Deducted at Source) TDS is one of the most common entries to be passed while receiving and making payment. It involves proper calculation, posting it in the right ledger, and reconciliation. In this post, we will guide you in passing TDS entry in Tally. We will provide practical examples for TDS Journal entry in Tally ERP 9 and Tally prime.
This tutorial aims to guide you through these topics:
Before we get into the steps of passing Tally entry of TDS, let’s understand the concept of TDS receivable and payable.
Note: If you exactly know about TDS, TDS rates, calculations and posting, you can directly jump to the Steps section.
Tax Deducted at Source (TDS) is a pre-tax deduction made at source (before payment) by the payer from the payment made to the payee. It is a mechanism of collecting tax by using a deduction mechanism rather than through payments made by the taxpayer. It is deducted at the time of payment, and directly deposited into the government (Income Tax Department’s) account.
There are generally two types of TDS in Books of Accounts: TDS Payable and TDS Receivable. We will understand both these TDS entries in Tally ERP 9 with examples.
Suggested Read: How to Record Sales & Purchase Entry in Tally with GST
It’s the amount which you are required to deduct from the total payable amount to the service provider, contractor, professional, and then deposit to Income Tax department as tax on behalf of the payee.
It’s held on behalf of the Payee therefore it appears on the liability side of the balance sheet.
This must be confusing, let’s try to understand through a practical TDS example
Consider yourself as a hospital entity. Suppose you need to pay a sum of ₹1,00,000 to a doctor who provides professional medical services at your hospital.
Now as per the Finance Act, you should pay only ₹90,000 to the doctor after deducting ₹10,000 (at the rate of 10% on the total amount payable.) You need to deposit this 10,000 directly to the Income Tax department’s bank account on behalf of the doctor.
Note:
TDS receivable is the amount deducted by your customer, client, tenant, etc. from the total payable amount and is deposited to the IT department on your behalf.
TDS Receivable Example:
If you have rented out an office in your building to a bank at a rent of ₹80,000 monthly, you will only receive ₹72,000 in your bank account. ₹8000 will be deducted by the bank and will be deposited as tax paid to the IT department on your behalf.
Note:
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Although it’s quite simple, there might be confusion related to TDS calculation. TDS deductible amount should be accurately calculated while making payments. Here are the major things that you need to consider while calculating TDS.
Now, let’s understand the entries made in Tally for TDS. As we have talked, there are two types of TDS entries that you need to make: TDS Payable and TDS Receivable.
According to standard Accounting Practice, TDS Payable is passed by three different entries.
Practical TDS Payable Entry Example
If ₹50,000 for as contract is payable to Mr. X after deducting TDS at 10%.
Contract Expenses A/c Dr | 50,000/- |
To Mr. X A/c | 45,000/- |
To TDS Payable A/c | 5,000/- |
Mr. X A/c Dr | 45,000/- |
To Bank A/c | 45,000/- |
TDS Payable A/c Dr | 5,000/- |
To Bank A/c | 5,000/- |
Here are the steps you need to follow for Tally ERP TDS payable entry:
Step 1: Open “Gateway of Tally”
Step 2: Navigate to “Accounts info” info or press “A”
Step 3: Go to “Ledgers” or press “L” on keyboard
Step 4: Choose Create option or press “C” on keyboard
Step 5: Write “TDS Payable” on name field.
Step 6: Choose “Current Liabilities” as the group
Step 7: Simultaneously Press Ctrl+A and save the ledger.
Step 1: Open “Gateway of Tally”
Step 2: Navigate to “Accounting Vouchers” info or press “V”
Step 3: Press “F7” on keyboard to pass journal entries
Step 4: Enter expense ledger for expenses you are booking (Rent, Contract, Professional Fee)
(Or)
Press “Alt +C” to create a new expense ledger
Step 5: Input the total amount payable before TDS deduction and press “Enter”
Step 6: Select the Payee whom the amount is to be paid
(Or)
Press “Alt +C” to create a new ledger
Step 7: Press “Enter”
Step 9: Input the amount after TDS Deduction and press “Enter”
Step 10: Select “TDS Payable” account and input the TDS amount
Step 11: Enter Narration (Optional)
Step 12: Press “Ctrl +A” to save the journal voucher
Suggested Read: How to Create Ledger in Tally Prime
Step 1: Open “Gateway of Tally”
Step 2: Navigate to “Accounting Vouchers” info or Press “V”
Step 3: Press “F5” on keyboard to pass payment entries
Step 4: Select the payment account (Bank, Cash, etc.)
Step 5: Select the payee whom the amount is to be paid
Step 6: Enter the net amount paid to the payee
Step 7: Press “Ctrl +A” to save the journal voucher
Step 1: Open “Gateway of Tally”
Step 2: Navigate to “Accounting Vouchers” info or press “V”
Step 3: Press “F5” on keyboard to pass payment entries
Step 4: Select the payment account (Bank, Cash, etc.)
Step 5: Select the “TDS Payable”
Step 6: Enter the net amount deposited
Step 7: Press “Ctrl +A” to save the journal voucher
TDS receivable entry is generally booked in two parts.
Practical TDS Receivable Example
Your company sent out the bill of ₹35,000 for contract to XYZ private limited. The payment was received after the deduction of TDS at 10%.
XYZ Pvt LTD A/c Dr | 35,000/- |
To Revenue A/c Cr | 35,000/- |
Receipt Entry
Bank A/c Dr | 31,500/- |
To XYZ Pvt Ltd | 31,500/- |
Journal Entry
TDS Receivable A/c Dr | 3,500/- |
To XYZ Pvt Ltd A/c | 3,500/- |
Here are the steps you need to follow for Tally ERP TDS receivable entry
Step 1: Open “Gateway of Tally”
Step 2: Navigate to “Accounts info” Info or Press “A”
Step 3: Go to “Ledgers” or press “L” on Keyboard
Step 4: Choose Create option or press “C” on keyboard
Step 5: Write “TDS Receivable” on Name Field.
Step 6: Choose “Current Assets” as the group
Step 7: Simultaneously Press Ctrl+A and save the ledger.
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Step 1: Open “Gateway of Tally”
Step 2: Navigate to “Accounting Vouchers” info or press “V”
Step 3: Press “F7” on keyboard to pass journal entries
Step 4: Enter the customer/ client account to whom the bill is issued
(Or)
Press “Alt +C” to create a new customer/client ledger
Step 5: Input the total amount receivable before TDS deduction and press “Enter”
Step 6: Enter revenue ledger for income you are booking (Professional, Contract, etc.)
(Or)
Press “Alt +C” to create a new ledger
Step 7: Press “Enter” twice
Step 8: Press “Ctrl +A” to save the journal voucher
You need to pass two entries to book TDS receivable
Payment Entry
Step 1: Open “Gateway of Tally”
Step 2: Navigate to “Accounting Vouchers” info or press “V”
Step 3: Press “F6” on keyboard to pass receipt entries
Step 4: Select the receipt ledger (Bank, Cash, etc.)
Step 5: Select the party from whom the amount is received
Step 6: Enter the net amount received from the client/customer
Step 7: Press “Ctrl +A” to save the journal voucher
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TDS Receivable Booking
Step 1: Open “Gateway of Tally”
Step 2: Navigate to “Accounting Vouchers” info or press “V”
Step 3: Press “F7” on keyboard to pass journal entries
Step 4: Select the “TDS Receivable” ledger
Step 5: Input the total amount deducted as TDS and press “Enter”
Step 6: Enter customer/client ledger
Step 7: Press “Enter”
Step 8: Press “Ctrl +A” to save the journal voucher
Whenever you must make a Tally entry for TDS with GST, the entire process remains the same except the fact that TDS is only deducted on the taxable value component not on the GST component. Else, the entry will remain the same as above.
Here is a TDS entry in Tally ERP 9 GST with an example
If your company avails ₹1,00,000 services from a website designing agency and the agency charges 18% GST on the total value of contract. The total value payable would be ₹1,18,000.
The TDS deductible would be ₹10,000 (10% of ₹1,00,000). TDS would not be deducted from GST component i.e., ₹18,000
The entry would be as follows:
Expense A/c Dr | 1,00,000/- |
CGST ITC A/c Dr | 9,000/- |
SGST ITC A/c Dr | 9,000/- |
To Agency A/c | 1,08,000/- |
To TDS Payable A/c | 10,000/- |
Note: The entry should be passed as a journal voucher in Tally ERP 9 and Tally Prime.
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FAQ
TDS ledger should ideally be created under Duties and Taxes Group in Tally. However, it could be created under Current Asset and Current Liability for better representation on balance sheet. TDS receivable should be under Current Asset and TDS payable under Current Liability for better representation.
TDS receivable is considered as an asset while TDS payable is considered as liability.
No, TDS is not calculated on GST component. TDS is only calculated on the taxable value of the service or charges but not on the GST component.
TDS payable is the amount deducted from total payment to be made to the payee. Since it’s a part of salary, contract or professional expense, it is deemed to be expense. However, TDS payable is not accounted separately as an expense, as it’s already booked when the expense is due.
Related Categories: Accounting Software | GST Software | Income Tax Software | Expense Management Software | Financial Management Software
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