Issue

The Customer's deduct TDS (Tax Deducted at Source) while making payment and deposit the same against the supplier’s PAN in the Income Tax portal.

As per the accounting process followed by the organization:

• TDS should be accounted for at the time of payment receipt
• The deducted amount should flow into the “TDS Receivable” account
• Customer outstanding should get fully reconciled

However, users are unable to identify the correct method to record the TDS deduction during Payment Entry in ERPNext.

Resolution

In ERPNext, customer deducted TDS can be accounted for directly during Payment Entry using the Deductions section.

Example:

Let's say there is a submitted Sales Invoice of 1,00,000/-

Now the organization wants to record the deducted TDS in the Payment Entry

Steps to Record the Payment Entry

Create Payment Entry:

• Payment Type: Receive
• Party Type: Customer
• Party: Select Customer

Enter Actual Amount Received

If the customer deducts TDS before payment:

Example:

• Invoice Amount: ₹1,00,000
• TDS Deducted by Customer: ₹10,000
• Amount Received in Bank: ₹90,000

Enter the Paid Amount = ₹90,000

Add TDS in Deductions & Loss Table

This adjustment will automatically reconcile the invoice for the complete amount.

Accounting Impact

The following accounting entries will be created after submitting the Payment Entry

Result

After the Payment Entry Submitted:

• The Customer outstanding becomes zero
• TDS amount is tracked separately in “TDS Receivable”
• Bank receives only the net payment