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TDS (Tax Deduction at Source) – Sales & Receivables Process

This document explains how TDS is calculated, deducted, and recorded in accounting from both the Seller’s and Purchaser’s perspective within the Aegis Software system.

1. What is TDS?

TDS (Tax Deduction at Source) is a tax deducted by the purchaser at the time of making payment to the seller.

  • Seller issues a VAT bill with Buyer’s Name and PAN Number*.

  • Purchaser deducts applicable TDS (generally 1.5% on service sales in Nepal) before making payment.

  • Seller records deducted amount as TDS Receivable (claimable during annual tax filing).

  • Purchaser records the deducted amount as TDS Payable (liability to be deposited to the government).

2. TDS Calculation Example

Example Transaction

  • Seller: Pokhara Grande

  • Purchaser: Aegis Software Pvt. Ltd.

  • Sales Amount (Excl. VAT): Rs. 500

  • Discount: Rs. 50

Calculation

Particulars Amount (Rs.)
Subtotal (Before Discount) 500
Discount (50)
Taxable Amount 450
VAT @ 13% 58.5
Grand Total 508.5

  • TDS Base (After Discount Value): 450

  • TDS @ 1.5%: 6.75

  • Payment Receivable (Net): 508.5 – 6.75 = 501.75

3. Accounting Entries (Seller’s Books)

A. Sales Entry

Ledger DR (Rs.) CR (Rs.)
Sundry Debtors >> Aegis Software 508.5
Revenue – Room Tariff
450.0
VAT on Sales (13%)
58.5

👉 Receivable Amount = 508.5 DR

B. TDS Deduction Entry (Journal Voucher / Own Voucher)

Ledger DR (Rs.) CR (Rs.)
TDS Receivable >> Aegis Software 6.75
Sundry Debtors >> Aegis Software
6.75

👉 Net Receivable = 501.75 DR

4. Accounting Entries (Purchaser’s Books)

A. Purchase Entry

Ledger DR (Rs.) CR (Rs.)
Business Promotion Expenses 450.0
VAT on Purchase 58.5
Sundry Creditors >> Pokhara Grande
508.5

👉 Payable Amount = 508.5 CR

B. TDS Deduction Entry (Journal Voucher / Own Voucher)

Ledger DR (Rs.) CR (Rs.)
Sundry Creditors >> Pokhara Grande 6.75
TDS Payable >> Pokhara Grande
6.75

👉 Net Payable to Seller = 501.75 CR

5. Summary of Flow

  1. Seller issues VAT bill → Records sales + VAT.

  2. Purchaser deducts TDS → Pays seller net amount.

  3. Seller records TDS Receivable → Claims adjustment during tax submission.

  4. Purchaser records TDS Payable → Deposits to government.

6. Why TDS? (Government’s Point of View)

From the government’s side, TDS is a way to make sure tax is collected properly and no one hides income.

  1. Stops tax hiding –
    When TDS is cut at the time of payment, the seller cannot avoid paying tax later.

  2. Collects tax on time –
    Instead of waiting until year-end, the government gets part of the tax right away.

  3. Keeps both parties in record –
    Purchaser shows TDS as TDS Payable and seller shows it as TDS Receivable.
    This way, both sides are reporting the same transaction, so it’s easy to check.

  4. Makes businesses follow rules –
    Since TDS is linked with PAN and VAT bills, everyone has to keep clear records.

  5. Reduces seller’s burden at year-end –
    Some tax is already deducted in advance, so the seller pays less at the time of annual tax filing.

👉 In short: TDS is not an extra tax. It is just a method to make sure tax is collected fairly, on time, and nobody can hide their income.

✅ This process ensures compliance with Nepal’s TDS regulations and maintains transparent accounting records for both parties.

Documented By - Sundar Mishra

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