Introduction

TDS is Tax Deducted at Source. TDS is the amount of tax which is deducted by the employer from the taxpayer and is deposited to the Income Tax Department on behalf of him/her. The TDS rates are set on the basis of the age and income of different individuals. TDS or Tax Deducted at Source is a specific amount that is reduced when a certain payment like salary, commission, rent, interest, professional fees etc. is made. The person who makes the payment deducts tax at the source while the person who receives a payment/income has the liability to pay tax. It lowers tax evasion because the tax will be collected at the time of making a payment.

Note: TDS is nothing but advance payment of income tax.

When the TDS applied

When you get your salary, TDS is deducted from your salary. Let’s for simplicity assume that the TDS on your salary is ₹20,000 and you are applying for the refund of the TDS because your income i.e. your salary is under the base limit for income tax which is currently ₹2,50,000. For creating a TDS entry you need to understand the nature of TDS. Firstly, when the TDS is deducted from your salary, it is an expense for you otherwise you would have got ₹20,000 of more salary which means, it is actually your own salary. That means tax is deducted on your salary in advance. So if the TDS of ₹20,000 is deducted from your salary, your actual salary will be ₹2,40,000 + ₹20,000 = 2,60,000.

Before entry for TDS we have to create three Ledgers:

1. TDS on Salary

2. Salary

3. Bank Account

The entry for deduction of TDS in Tally will be:

TDS on Salary A/c Dr ₹20,000 To Salary A/c ₹20,000

Before creating TDS ledger, we have to enable the TDS option in Tally. For that

1. In the Gateway of Tally screen, press F11 to open Company Features

2. Under Company Features select Statutory & Taxation

3. The Statutory & Taxation screen will open

4. Here press y for yes to enable Tax Deducted at Source

5. Also set yes to Set/alter TDS details. As you press y for yes, a new window will open

6. Fill the details and press enter to save. You will come back to the main screen

7. Press enter to save this screen

8. Now, your TDS option will enabled

Now, create your first ledgers

1. TDS on Salary

1. 1. From Gateway of Tally, go to Accounts Info.

2. 2. Under Accounts Info., go to Ledgers

3. 3. Under Single Ledger, select Create

4. 4. The new Ledger screen will open

5. 5. Fill the detail here

In the same way, create two other ledgers as Salary and Bank Account.

2. Salary Ledger

3. Bank Account Ledger

Now, its time for voucher entry. We have created this entry on Receipt voucher because it is our salary account. Press F6 to open the Receipt voucher

When you pass the entry, a new window for your bank account will open. Here you can see that your bank has received 19,000 not 20,000 because of TDS

In the above example it is clear that your salary is 20,000 and your TDS is 1,000 and you have to submit in SBI Rs.19,000 and whole of the transaction is in Receipt Voucher. After entry, the details of the whole amount is shown under Balance Sheet:

If you want to see the whole detail of your salary in month wise then press enter on the Salary in Balance Sheet, the window will be as under:

Further press enter after selecting the amount, the detail will be as under

If again press enter from this window, will go to the same receipt voucher from where you enter the record

In the same way, if you want to see the whole detail of your TDS in month wise then press enter on the TDS in Balance Sheet, the window will be as under:

From here all the procedures are the same as in the case of the Salary statement. It will show the month of April detail with the graph because your TDS is deducted in the month of April.

How to refund your TDS income

Now, it's time to refund your TDS income because actually it is the part of your salary. So the steps to refund your TDS income is as:

1. First create a Ledger named TDS Refund or any other as you like.

2. It comes under Loan and Advance (Asset) because it is a type of loan which you give to govt.

3. This entry will come under Journal Voucher because it does not involve any Bank or Cash Account.

4. Open the Voucher window and select Journal from the right side or just press F7.

Because you have received all your TDS amount so it can be shown on your Balance Sheet:

In this case, you do not need to pay taxes so you will have to pass another entry for the refund of TDS. And the actual entry of the TDS Refund is

Now, you can see clearly that the TDS entry in the Balance Sheet has been empty.

From your Assets side, if you press enter on the Loans & Advances

The detail will be as under

If further click on this entry, month wise detail will come

The Ledger will also show

If you are taking the refund of TDS that means it is kind of advance given to the government. Therefore, the TDS Refund A/c will be under Loans & Advances (Assets) on the Assets side of the Balance Sheet. Both of the above entries will be Journal entries in Tally because there is no cash or bank account involved in any of the above entries. Here is what the Balance Sheet looks like after passing both of the TDS entries in Tally.

Withdrawal the Amount

Look at the Loans & Advances (Asset) which I have selected in Tally. It is of ₹1,000 and that is nothing but the TDS Refund. Now, we have covered almost everything that is needed to maintain personal accounts in Tally. Till now, we have covered a lot of personal entries in Tally and I showed you to enter the income in Tally in the form of salary. This is all as per the Income Tax Act, 1961. Now, one last accounting procedure is required which is to close the current accounts. Now, let’s say, you withdraw ₹10,000 every month for your living expenses. For that you have to create withdrawal entries for every month because as you get the salary every month, you will be withdrawing money accordingly. The entry for withdrawal will be bank payment entry because you are paying to yourself from the salary that you got into your account. It will be:

Withdrawals A/c Dr. ₹10,000 To SBI A/c ₹10,000

If there is no Ledger named Withdrawal then you can also create this ledger from the Payment voucher screen, for this the shortcut key is Alt+C. It will open the Ledger window from here.

When pass the second entry i.e. the SBI bank entry, the same bank transaction sub window will open

After creating the withdrawal, the Balance Sheet shows the result

From the Balance Sheet if we press enter on the Withdrawal amount, the following window will open

As you see, Withdrawal income also shown in graph. Further click on the month i.e. April, the detail will display as

The withdrawals figure is negative because when you use the money for your expenses, your capital gets reduced and hence the negative balance in the capital account will show.