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Most of the companies record provision entries made towards various expenditures on a monthly basis to report performance to the parent entities that are reversed on the first day of the subsequent month. While these accruals are made on a very broad estimate for reporting purposes, the tax officers have been insisting to deduct tax on such provisional entries.

Year-end provisions are made by taxpayers to follow accrual system of accounting. Very often provision for expenses at the year-end are made based on best estimates available with the taxpayer even if the supporting invoice is received at the subsequent date. In certain instances, even the payees are not identifiable; however the year-end provisions are made by taxpayers.

As per the current tax regime, tax is required to be deducted on such provisions which often leads to excess deduction and deposit of tax, disputes with the vendor and unnecessary burden posed on the payer in carrying extensive reconciliations.


Relief from deduction of tax at source should be given to the payee on payments that are accrued but are not due and represents only a provision made on a monthly basis for reporting purpose that are reversed on the first day of the subsequent month. Further, the relief should also be given from deduction of tax at source on payments for which the payees are not identifiable. The Tribunal has also held the same in certain cases.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)

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June 2024