| # 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