Accounting Q&A · Taxation · Topic 6
Practise 25 TDS and withholding tax questions on gross payments, certificates, credits and journal entries. Try each question before opening the answer. The examples use hypothetical amounts and rates. Check the rules for your jurisdiction and tax year before applying them.
Worked example
A supplier earns 2,000. With hypothetical withholding of 5%, pay the supplier 1,900 and record 100 payable to the authority.
Key concepts
1. What is withholding tax?
Tax retained by a payer and remitted to an authority under applicable rules.
2. What does TDS mean?
Tax deducted at source.
3. Who is the withholding agent?
The person or entity responsible for deducting and remitting the tax.
4. Who is the payee?
The person entitled to the underlying payment.
5. Does every payment require withholding?
Check the payment type, recipient, jurisdiction and exemptions.
6. What is the withholding base?
The amount to which the rate applies under the relevant rule.
7. Why distinguish gross from net payment?
The gross amount establishes the underlying charge and the net amount is what the recipient receives.
8. What is a withholding certificate?
Evidence showing the payment and tax withheld.
9. Is withholding always a final tax?
It can be final or creditable depending on the applicable rule.
10. When should tax be deducted?
Check the statutory trigger, which may involve payment or crediting the amount.
Applying the rules
11. What is 5% withholding on 4,000?
200.
12. What is the net cash payment in that example?
3,800.
13. How does the payer settle the 4,000 payable?
Debit payables 4,000, credit cash 3,800 and credit withholding payable 200.
14. How does remittance clear the liability?
Debit withholding payable 200 and credit cash 200.
15. How can the payee record receipt if withholding is creditable?
Debit cash 3,800 and tax prepayment 200. Credit receivables 4,000.
16. What is a gross-up?
Increasing gross payment so the recipient receives an agreed net amount.
17. What gross payment delivers 900 net at 10% withholding?
1,000, assuming the tax applies to the gross amount.
18. Why check a treaty before applying a reduced rate?
Eligibility and documentation requirements must be met.
19. What records support residency for treaty purposes?
An applicable residence certificate and other required supporting documents.
Review questions
20. What if the wrong rate was applied?
Check the authority’s correction and recovery process and document the adjustment.
21. Why match certificates to the ledger?
Identify missing credits and differences in period or taxpayer details.
22. How should exempt payments be documented?
Retain evidence and cite the applicable exemption or authority determination.
23. Why reconcile withholding payable monthly?
Confirm deductions, remittances and unpaid amounts by period.
24. What should a withholding register track?
Payee, payment type, base, rate, deduction, remittance and certificate reference.
25. What should you confirm before using a published rate table?
Verify jurisdiction, effective date, recipient status, payment type and treaty conditions.
Official reference for Tax Deducted at Source and Withholding Tax.