TDS on Salary Entry in Tally: Ledgers and Journal Entries Explained
Employers are legally required to deduct Tax Deducted at Source (TDS) on salary while paying their employees and deposit it with the government on the employee’s behalf. Recording these transactions correctly in Tally keeps your books accurate and your TDS returns clean. This guide explains the accounting logic and the exact journal entries for TDS on salary in Tally.
What is TDS on salary?
TDS on salary is income tax that the employer deducts at the time of paying salary and remits to the government instead of the employee paying it directly. The employer computes the tax using the applicable income-tax slab rates for the year, based on the employee’s declared income and investment proofs, and deducts an estimated amount each month.
A simple example
Suppose Mr. A earns a gross salary of Rs. 50,000 per month from XYZ Company, and the applicable tax works out to 10%, i.e. Rs. 5,000. XYZ Company deducts Rs. 5,000 as TDS and deposits it with the government, and pays Mr. A the net salary of Rs. 45,000.
Ledgers involved
Three ledger accounts are used to record salary with TDS in Tally:
- Salary A/c — an expense (nominal) account, grouped under Indirect/Direct Expenses
- Salary Payable A/c — a liability account for the amount owed to the employee
- TDS Payable A/c — a liability account for the tax owed to the government
The accounting logic
Under the rules of accounting, salary is a nominal (expense) account, while Salary Payable and TDS Payable are liability accounts representing amounts owed to the employee and to the government respectively. So when salary is booked, the full expense is debited, and the credit is split between what is paid to the employee and what is withheld as TDS.
Journal entries for TDS on salary in Tally
1. Booking salary with TDS (using the figures above)
Salary A/c …………….. Dr 50,000
To Salary Payable A/c …………….. 45,000
To TDS Payable A/c …………….. 5,000
2. Payment of net salary to the employee
Salary Payable A/c …………….. Dr 45,000
To Bank A/c …………….. 45,000
3. Deposit of TDS with the government
TDS Payable A/c …………….. Dr 5,000
To Bank A/c …………….. 5,000
How to record this in Tally
Create the three ledgers under the correct groups, then pass the salary provision entry as a Journal Voucher (F7), and the two payment entries as Payment Vouchers (F5) when the salary and the TDS are actually paid. Deposit the TDS by the 7th of the following month (challan under section 192), and reflect it in your quarterly Form 24Q TDS return so the amount appears in each employee’s Form 16 and Form 26AS.
Need expert help?
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This guide is general information and is not a substitute for professional advice. Rules, rates and deadlines can change — verify the latest position on the relevant official portal or consult a professional before acting.
