Journal Entries of TDS

TDS means tax deducted at source. If tax is deducted from assessee's income and deposited in the Govt. account, its journal entries will be in the books of company. For example ABC company used the service of MR. N person. Now, ABC company will pay the amount of MR. N person. If TDS will apply as per income 
tax law, ABC will deduct TDS and net amount will pay to Mr. N person. At that time following journal entries will be passed in books of ABC company and Mr. N Person.


In the Books of ABC Company

1. When company pays the money and deduct the TDS. 

Indirect Expense Account Debit Mr. N Person Account Credit TDS of Mr. N Person Account Credit

Explanation of Above Entry with Example   : Suppose, ABC  have to pay Rs. 1,00,000 pay rent to Mr. A person. Suppose,   it TDS is Rs. 5000. Now, the net liability of Mr. N person will be of Rs. 95000. and TDS liability will be Rs. 5000 because both amount is payable to different persons. So, Mr. N person account will be credited with Rs. 95000 and TDS account will be credited with Rs. 5000. Because total Rent is the indirect expense, so Rs. 1,00,000 will be debited. Company will follow the law and total amount will be divided between assessee and govt.

Rent  Account Debit  1,00,000 Mr. N Person Account Credit 95000 TDS Credit 5000

Before Actual Payment to Creditor for expense and TDS, both will be shown in the liability side.

Liability Side of Balance Sheet 

Mr. N Person Account (Creditor for Rent ) = Rs. 95000 TDS = Rs. 5000

2. When Payment is done to Creditor for our expense and TDS, then following entry will be passed. 

Mr. N Person   Account Debit  95,000 TDS  Account Debit  5000 Bank Account Credit 1,00,000

In the Books of Mr. N Person  (Assessee) 

1. When his earning from Rent is due.

ABC Company Account Dr. 95000 TDS   Dr. 5000 Rent Account Cr. 100000

2. When Assessee Gets net amount of his rent

Bank Account Dr. 950000 ABC Company Account  Cr. 95000

3. When Govt. Refunds the TDS to Assessee

When Mr. N Person fills his regular income tax return and he refunds some of his TDS. Suppose, it is the Rs. 1500

Bank Account Dr.  1500 Refund of TDS Cr. 1500

{ Important Note : Payment of income tax is the personal liability of any person. So, we do not record the income tax of an individual assessee. But when TDS is deducted it just like drawing of person. So, it will be debited. When we get the refund of TDS, it is just like increase of capital because rent was our earning. If we deduct TDS, it means, it is decrease of our earning and capital. Refund is just like increase of our earning and capital.