TDS on professional fees
1. Facts of the Case:
Company:
- Company follows mercantile basis.
- Company creates a provision for audit fees for Rs.40,000/- for ‘FY 05-06’
- Company deducts TDS on above amount @ 10.3% = Rs.4120/- and remits to govt.
- Company issues TDS certificate to Auditor for the above TDS stating ‘FY 05-06’
CA Firm:
- Firm may follow mercantile basis or cash basis.
- Whatever it follows, Firm will raise the bill in ‘FY 06-07’ only and probably receive money in ‘FY 06-07’ only. So, income accounted in ‘FY 06-07’
- Firm will have to claim the TDS. But Certificate mentions ‘FY 05-06’. It can claim TDS certificate in ‘FY 06-07’ because TDS relates to the income which is accounted and offered as income, in ‘FY 06-07’.
2. Queries in the above Case:
Company:
- Whether Company should show as Provision for Audit Fees under provisions or Outstanding Expenses under Current Liabilities?
- If it is just a provision, should the company deduct TDS (because TDS should be deductible at the time of credit to the party or payment to the party whichever is earlier)?
- When should the company deduct TDS? In the TDS certificate what Financial Year should be mentioned?
- What happens, if auditor bill is different and provision for audit fee amount is different?
CA Firm:
- When should firm account the fees?
- When should TDS be claimed?
The query above relates to conceptual issues like provisions vs. liability, tds credit, accrual vs. matching concept….. The above is a food for thought and there is no proper consensus among the professionals. If you give your feedback the same may be beneficial for the public at large and the professionals at large. Your feedbacks are invited!
