Title:

Withholding tax configuration and end users document.

Purpose:
This document briefly explains the configuration process and, the end-users
transactions with respect to TDS and generation of TDS certificate.

Assumptions:
This document has been prepared on the following assumptions:
1. Only TDS on contractors payment considered.
2. 2% basic TDS taken in to account.
3. TDS threshold limit: Rs50,000 (annual)
4. Education cess 2% of basic TDS as said in (2)
5. Higher education cess 1% of basic TDS as said in (2)
6. Surcharge threshold limit: Rs1,00,00,000.00 (annual)
7. Surcharge rate is 0.2% of the invoice amount
8. Education cess and higher education cess on surcharge considered as
specified in point 4 and 5.

How this document is arranged:

This document has 2 parts; part 1 explains about the configuration and end-
users transaction with respect to TDS and, part 2 talks about the configuration
and end-users transaction relating to TDS certificate printing.
Part 1 (TDS Configuration)

Maintain withholding tax countries: Path:-

Maintain withholding tax countries: Values:-

Step 2:- Define Withholding Tax Keys

IMG Financial Accounting Financial Accounting Global Settings

Withholding Tax Extended Withholding Tax Basic Settings Define
Withholding Tax Keys
Here we configure the various tax keys which are applicable in different
scenarios.

For example:-

Withholding tax code on Contractors -194C

Withholding tax code on Rent -194I
Withholding tax code on Commission and brokerage 194H
Withholding tax code on Professional & Technical service 194 J

Maintain withholding tax type:- Path

Maintain withholding tax type:- Values

6 tax types maintained as given under:

Features of respective tax types i.e. T1, T2, T3, T4, T4, T5, T6

Features of T1 (used for basic TDS):

This is based on invoice amount
Threshold limit:50,000 and accumulation starts from April.
Features of T2:
This is based on T1.
Features of T3:
This is based on T1
Features of T1 (used for basic TDS):
This is based on invoice amount
Threshold limit:1,00,00,000 and accumulation starts from April.

Features of T5:
This is based on T4
Features of T6:
This is based on T4
Define tax code: Path:-
Define tax code: Values:-

6 tax codes maintained as given under:

T1 & C1 calculates tax @ 2% on invoice amount and, TDS is deducted when the
invoice amount exceeds Rs50, 000/-.

T2 & C1 calculates tax @ 2% on T1 & C1.

T3 & C1 calculates tax @ 1% on T1 & C1.
T4 & C1 calculates TDS @ 0.2% on invoice value and, deducts TDS when the
invoice amount exceeds Rs1, 00, 00,000/-.

T5 & C1 calculates tax @ 2% on T4 & C1.

T6 & C1 calculates tax @ 1% on T4 & C1.

Portray dependencies between withholding tax types:

(In this activity we define that the base for T2 & T2 is T1 and, the base for T5 &
T6 is T4)

Dependency for T1:

Dependency for T2

Dependency for T3

Dependency for T4

Dependency for T5
Dependency for T6

Define Min/Max Amounts for Withholding Tax Codes: Path:-

This setting defines the threshold for 50,000 and 1,00,00,000

Threshold for TDS to deducted for the 1st time.

Threshold for Surcharge to deducted for the 1st time.

Assign Withholding Tax Types to Company Codes: Path:-

Assign Withholding Tax Types to Company Codes: Value for T1:-
Value for T2
Value for T3
Value for T4
Value for T5
Value for T6

Activate Extended Withholding Tax: Path:-

Define Accounts for Withholding Tax to be Paid Over: Path:-

Assign the required GL accounts at CoA level

Check Recipient Types

IMG Financial Accounting Financial Accounting Global Settings

Withholding TaxExtended Withholding Tax Basic Settings Check
Recipient Types

This is required to categorize the vendor.

For example:-
If the vendor is a company or,
Other than a company.

Select the country Key.

Click on New Entries.

Click on save Button.

Assign tax type and tax code in vendor master

Part 1 (TDS- End-user transactions)

Test posting an invoice for Rs49, 000/-. Expected action:

1. The system should only be posting the full amount of Rs49, 000/- in the
Vendors ledger without deducting any TDS amount. The reason for non-
deduction is; we have set the deduction threshold at Rs50, 000/-
2. Must keep a track of this invoice for deduction of TDS and Surcharge once
the accumulated amount exceeds the threshold limits.

Test posting an invoice for Rs51,000/-. Expected actions:

1. The system must deduct TDS @ 51,000 + 49,000 i.e. Rs2,000/-
2. System must deduct education cess @ 2% on Rs2,000/-
3. System must deduct higher education cess @ 1% on Rs2,000/-
4. Must keep a track of this invoice for deduction of Surcharge once the
accumulated amount exceeds the threshold limit.
Test posting an invoice for Rs99,00,000/-. Expected actions:
1. The system must deduct TDS @ 2% on Rs99,00,000/- i.e. Rs1,98,000/-
2. System must deduct education cess @ 2% on Rs198,000/-
3. System must deduct higher education cess @ 1% on Rs198,000/-
4. Must calculate Surcharge @0.2% on 49,000+51,000+99,00,000/- i.e.
Rs20,000/-
5. System must deduct education cess @ 2% on Rs20,000/-
6. System must deduct higher education cess @ 1% on Rs20,000/-