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A student knows TDS is deducted but not how the debits and credits flow from bill to challan.
The expense is recorded at full value; the vendor is credited with the net; the withheld tax sits in TDS Payable until a challan clears it.
TDS Payable ledgers by section or payment code, a vendor ledger, a GST input ledger and an interest-on-TDS expense ledger.
Vendor ledger at nil after payment, TDS Payable at nil after deposit, and a clean trail for the quarterly return.
When you pay a vendor and deduct TDS: debit the expense (and GST input credit) for the full bill, credit the vendor for what you will actually pay, and credit TDS Payable for the tax withheld. When you deposit the tax, debit TDS Payable and credit the bank.
Worked example
A professional’s bill: ₹1,00,000 fee plus ₹18,000 GST, total ₹1,18,000. Assumed TDS 10 percent on ₹1,00,000 = ₹10,000.
1. Booking the bill
- Dr Professional Fees ₹1,00,000
- Dr GST Input Credit ₹18,000
- Cr Vendor ₹1,08,000
- Cr TDS Payable ₹10,000
Check: debits ₹1,18,000, credits ₹1,08,000 + ₹10,000 = ₹1,18,000.
2. Paying the vendor
- Dr Vendor ₹1,08,000
- Cr Bank ₹1,08,000
3. Depositing the TDS by the 7th of next month
- Dr TDS Payable ₹10,000
- Cr Bank ₹10,000
Both the vendor and TDS Payable ledgers are now nil.
The four entries at a glance
| Event | Debit | Credit |
|---|---|---|
| Booking the bill | Expense, GST input | Vendor (net), TDS Payable |
| Paying the vendor | Vendor | Bank |
| Depositing the challan | TDS Payable | Bank |
| Interest on a late deposit | Interest on TDS (expense) | Bank |
If the ₹10,000 above were deposited a month late, interest at 1.5 percent a month under the 1961 Act’s Section 201(1A) would be ₹150, paid through the same challan: Dr Interest on TDS ₹150, Cr Bank ₹150.
One TDS Payable ledger, or one per section?
One per section, or per payment code from April 2026, is better. For example: TDS Payable 194C (codes 1023/1024), TDS Payable 194J (codes 1026/1027/1028), TDS Payable 194-I (codes 1008/1009). The challan and the quarterly return are both split this way, so separate ledgers let you tick each one off in minutes at month-end. A single lumped ledger hides a deposit made under the wrong section.
What changes with an advance, or a bill booked in one month and paid in another?
TDS is due at the earlier of credit in the books or payment.
- Advance first: deduct when you pay the advance. Dr Vendor Advance ₹50,000; Cr Bank ₹45,000; Cr TDS Payable ₹5,000. When the bill arrives, adjust the advance and deduct only on the balance.
- Booked in March, paid in April: TDS belongs to March, because the credit came first, and is deposited by 30 April.
What to read next
- Next in the series: Why does my TDS payable balance not match what I deposited?
- TDS quarterly filing reconciliation
- Monthly and quarterly TDS reconciliation runbook
TransactIG reconciles TDS against your books, and matches the challan payment in the bank statement to the ledger. See TDS reconciliation software and reconciliation software for India.