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to 5% of the quoted price individually in the stated bank account of the office as security
deposit, commonly known as earnest money. The amount of the earnest money deposited
by the contracts is known only after the sealed bids or tenders are opened. The tenders
are opened at a pre-specified date in the presence of the contractors or their authorized
representatives.
Generally, the tender is accepted which has quoted the least price of the work subject to
the provisions and procedures of rules and regulations. Additional security deposit may
be asked if needed, from the accepted contractor and the security deposits of the rejected
ones are refunded.
The contractor, whose tender is accepted, now begins the work. After the completion of
a certain portion of the work, he presents a running bill to the office by asking for the
payment to incur his expenses. It is certified by the architect of the office and payment is
made on the basis of the running bill. Such a process may continue from time to time as
necessity until the work is completed. At the time of the payment of the running bills, 5%
of the amount is deducted as security deposit, next 5% as contract tax and other necessary
deductions if any. The remaining amount is paid through cheque.
Security deposit is a security to the government against any wilful misconduct or
violation of contract by the contractor in the conduct of contractual work. When the work
is completed and certified by the architect, a clearance letter is issued to the contractor and
as usual the amount is paid with necessary deductions. His security deposit cumulated
so far is returned through the established procedures. In order to avoid the chances
of misuse and manipulation of the amount of security deposit, it should be separated
from the amount of annual appropriation and deposited into a separate security deposit
account in the bank.
On the other side, contract tax is a revenue from the price (income) received by the
contractor and, thus, deposited into contract tax account at the time of every deduction
and finally collected into the consolidated fund of the government at the end of fiscal year
or after the completion of the work and clearance of the contract price.
The following illustration may clear the concept of security deposit and contract tax and
their accounting:
While depositing amount of security deposit into bank,

Dr. Treasury Single Account (TSA) (Security deposit account)
Cr. Security deposit account of ........... (Name of contractor)
(Being the amount of security deposit received through bank)

While paying amount of contract bill,

Dr. BE ............. (Budget head)
Cr. Security deposit account of ........... (Name of contractor)
Cr. Contract tax
Cr. Treasury Single Account (TSA)
(Being the amount of contract bill paid deducting necessary amount)

240 Aakar’s Office Practice and Accountancy - 10 Journal Voucher 241