When you pay a supplier and withhold tax, three accounts move at once. Getting the entry right matters, because a wrong entry quietly drifts your supplier balance, your bill and your ledger apart.
The idea in one line
You pay the supplier the net amount from your bank. The tax you withheld is owed to the government. Together they settle the supplier's bill.
A worked example
Suppose a supplier bill is Rs 10,000, and a 5 percent withholding rate applies. This is an illustration only. Check the rate that applies to your supplier with your tax advisor.
You pay Rs 5,000 from the bank, as part payment. The bill is settled by a gross amount, so the system works backwards:
| Item | Amount |
|---|---|
| Net paid from bank | 5,000 |
| Tax withheld | 263 |
| Settled against the bill (gross) | 5,263 |
The journal entry
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | 5,263 | |
| Withholding Tax Payable | 263 | |
| Bank | 5,000 |
Both sides total 5,263. The supplier's balance falls by the full 5,263, the tax sits in a liability account until you deposit it, and the bank shows only what actually left.
Common mistakes
- Reducing the bank line by the tax. The bank only moves by what you actually paid.
- Settling the bill by the net amount only. The bill is then left owing the tax portion forever.
- Editing the original entry. Always reverse and repost, so the audit trail stays complete.
How OneAccounts handles it
In OneAccounts you type the amount that left the bank. The system finds the tax on the bill, posts both sides, and updates the bill and supplier balance together. If you edit or reverse the payment later, it mirrors the latest posting exactly, so nothing drifts.