TAX DEDUCTION AT SOURCE

BOOKKEEPING COURSE: TAX DEDUCTION AT SOURCE

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Tax Deduction at Source


In general, 2 different bookkeeping accounts are needed:
  1. The "Deductions at source from suppliers" Account - the account organizes the tax that was deducted from your suppliers or service providers as well as the tax paid to the tax authorities on the due date each month.
  2. The tax deducted at source from customers. = the account organizes the tax deducted from you by your customers.


Records in the "Tax Deduction at Source from Suppliers" Account


    Data : 1.4.xx - You paid $100 plus VAT of $15 for printing. You deducted
                       tax at source at a rate of 20%.
                       (115 x 20% = $ 23)
           7.5.xx - You transferred a sum of $ 23 to the tax authorities.

Bookkeeping records

    Debit Credit
1.4.xx   1. Office expenses 100  
  Value added tax on inputs 15  
Bank current account   92
tax deduction at source   23
 


    115

115

       
7.5.xx   2 Tax deducted at source from suppliers 23  
  Bank current account   23
 


    23
===
23
   ===


Visually, the accounts would look as follows:

Office  expenses
   Debit Credit   
   
  100(1)
VAT o n inputs
   Debit Credit   
   
  15(1)
Bank cur rent a/c
   Debit Credit   
(1)92


   
Deductions at so urce from suppliers
   Debit Credit   
(1) 23
23 (1)


Take care as the "Deductions at source from suppliers" account is, in all ways, a personal credit and debit account. The card indicates the amount that the Income Tax is entitled to receive from you for tax you have deducted from suppliers. The balance of the account may be in credit (before you have transferred the deductions on the due date) or it may be at zero (after you have made the payment to the income tax) but it can never show a debit balance.



Records in the "Deductions at source from customers" account


    Data: On 5.4.xx, you issued a tax invoice in the amount of $ 1,000 plus $ 150 value added tax.
        The payer deducted 20% ( $ 1,150 x 20% = $ 230). The cash balance was deposited directly into the Western Union Bank.

The Bookkeeping records



    Debit Credit
5.4.xx Western Union current account 920  
  Customer's deduction at source 230  
  Receipts   1,000
  VAT on transaction   150
   

    1,150 1,150
   



Visually, the accounts will look as follows:

Western Union  Current A/c
   Debit Credit   
  920
   
Customer's dedu ction at source
   Debit Credit   
   
   
Inc ome
   Debit Credit   
   
  100
VAT on  transactions
   Debit Credit   
   
  150


Take care as the "Deductions at source by customers" account is in all ways a personal debit and credit account. The account indicates the amount that the Income Tax owes you as a result of the fact that tax was deducted from you at source.
The balance of the "deductions at source by customers" accounts may show zero if no tax was deducted from you, or it may show a debit but the account may never be in credit.





The Development of Bookkeeping The debit & credit rules Journal Entries Nominal Ledger Trial Balance Annual Statements (Profit & Loss/Balance Sheet) The Balance Sheet
Bank Reconciliation Salaries Tax Deduction at Source Value added tax





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