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Withholding tax is a tax deducted at the beginning of payment flow. Amount withheld paid and reported to the tax authority on behalf of the person who is subject to tax. Two type of withholding tax

1. Classical Withholding tax

2. Extended withholding tax

Here we will see extended withholding tax setting.

Configuration by table maintenance, Tcode SM30 >>> Enter table name >>>> click maintain.

Step-1  Check Withholding Tax Countries (V_T005Q)

Withholding tax country is needed to maintain relevant tax code party master record and also print the withholding tax form.

C……..W………Description

IN……..IN………India

Step -2 Define Withholding Tax Keys (V_T059O)

The withholding tax keys correspond to the withholding tax laws according to which tax is withheld. The system can therefore assign the withholding tax items to the correct withholding tax return

Enter country key – IN

New Entry –

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Step -3  Define Reasons for Exemption (V_T059V)

you define reasons for exemption from withholding tax. You can enter this indicator in the vendor master record or in the company code withholding tax master record information.

Enter country key – IN

New Entry –

Exempted reason

Text

SA

Exampted

Setp -4 Define Sect.code (J_1I_SECCODE)

Business places are the location where tax is deducted.

New Entry –

Cocd

  1. Sect.Code

Name1

AR01

ND

New Delhi off

Setp 5 Define Business palce (J_1BBRANCV)

Business places are the location where tax is deducted .i.e location from where business of the company is carried out. Business place may head office, branch office, regional office etc which may have separate TAN. When post transaction business place must be enter, toensure that transaction is assigned to correct tax entity

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And activate business place for country India (VIDBUPLA_ACTIVE)

C…….BP active

IN……chk

Withholding tax type used to classify different type of withholding tax in a country. Withholding type controls the essential calculation options. Two type of tax

1. Withholding tax type for invoice posting

2. Withholding tax type for payment posting

Step – 6 Define Withholding Tax Type for Invoice Posting (V_T059PI)

Tax type controls the essential calculation options. The withholding tax type must enter in the customer/vendor withholding tax master data. The withholding tax type for entering a invoice and for posting of payment.

Country key – IN

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Step – 7 Define Withholding Tax Type for Payment Posting (V_T059PP)  

Country key – IN

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Save

Step 8 Check Recipient Types (V_T059C)

This is required to categorize the vendors. i.e company or non-company

Enter country key – IN

New Entry –

Wth,t,type

  1. Rec.ty

Text

IC

Co

Company

IC

NC

No-Company

Step-9 Define Withholding Tax Codes (V_T059Z)

The withholding tax code only controls the percentage rate of the withholding tax.

Country key – IN

New Entry

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Step-10 Assign Withholding Tax Types to Company Codes (V_T001WT)

By assign tax type to company code, by doing this, the tax type can be used for the specific company only.


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Step -11 Activate Extended Withholding Tax (V_T001_EXT)

go to cocd Ext.w/tax ….chk

Step -12 Define Accounts for Withholding Tax to be Paid Over (T code – OBWW)

Here we defined GL accounts to which the system will post tax amount.


Enter Chart of accounts –

Click Rule-

Select Debit/Credit

Click Account- Enter relevant account

Step -13 Maintain Number group (J_1IEWTNUMGR_N)

set up the numbering for the remittance challans. In this activity, you group together the permutations of company code, business place, and official withholding tax key that you want to remit withholding tax for.

C

  1. Sect. code

Off, w/tax

Number

AR01

ND

194C

19

Step -14 Assign number range (J_1IEWTNUM)

Number……..in

10…………….03

Step -15 Maintain Number Range (T code – J1INUMBER)

press F6———– (select group) ——– Shift+F5 —————- Wnter cocd —— year —– from number ——–to number

Step -16 Same steps repeats for Withholding Tax certificate For vendors and customers (above three steps) in following three areas.

J_1IEWT_CERT_N,       

J_1IEWT_CERTNO,             

T code –  J1INCT

Steps -17 Maintain company code setting  (J_1IINDCUS)

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Step -18  check party master record in company code “withholding tax accounting”. (FK01/FK02/FK03) This field should filled accordingly.

In vendor master record, assign tax type, tax code and recipient type to the master record. Which will be used to deduct tax during transaction postings.


Wth t

w/tax

Liable

Rec

IC

CI

Chk

co

Enter a vendor invoice FB60

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Additional Seting

Defining Withholding Tax Type for ECESS at Invoice/payment Posting This tax type is used for calculating Education Cess on tax and posting the tax amount at the time of creating invoice/payment. The configuration is similar to the previous section except that the field – Inherit base should be checked.  Then define dependencies between withholding tax categories.


Tax due date can be maintain in table J_1IEWTDUEDATE: In India withholding tax due date is 7th of next month. Enter 777 for the due date



Defining Withholding Tax Type for ECESS at Invoice/payment Posting this tax type is used for calculating Education Cess on tax and posting the tax amount at the time of creating invoice/payment. The configuration is similar to the previous section except the field – Inherit base should be checked i.e for cess tax type setting select “Inherit base”.  Then define dependencies between withholding tax categories.

In India there is some thrash hold for deduction, exemption limit upto certain amount at specified rate within time frame. There is no such setting in current SAP system.  Refer note 1415026. But we can manage to some extend in SAP.


Case 1


In a fiscal year

Upto 30000 at 2%

More than 30000 at 10%

For this we use formula. In tax code don’t put any percentage, select “W tax form.” and in tax type select accumulation type.  And maintain formula for the tax type and tax code.

Case -2


Tax will be deducted for limited period at lower rate. For this you may enter vendor master record, valid period for the tax type.


Special Transactions

  • Down payment requests and payment requests

  When you post down payment requests and payment requests, the system only calculates the withholding tax base amounts.  

  • Document parking

The system does not calculate any withholding tax base amounts when you save or change parked documents, only when they are posted.

  • Document holding

  When documents are held, the system does not calculate any withholding tax amounts/base amounts.  

  • Posting with reference

When you post documents using a reference, the system defaults withholding tax base amounts, but not any existing withholding tax amounts. The system does not calculate any withholding tax base amounts/tax amounts when you enter a reference document

.

  • Recurring entry documents

The system does not calculate any withholding tax base amounts/tax amounts when you enter a recurring entry document.


Summary

The basic withholding tax settings for India (Country India Version) will include the following sub processes which are commonly used within the main process.

Defining withholding tax keys

Defining branch offices (Section codes)

Defining withholding tax type invoice & payment posting

Defining withholding tax type for ECESS at Invoice posting

Maintaining surcharges

Defining withholding tax codes

Defining GL accounts to post the withholding tax

Maintenance of number ranges for tax certificates and Challan


1.    Withholding Tax Countries The withholding tax country is needed for printing the withholding tax form.


2.  Withholding Tax Keys to identify the different withholding tax types. you can define these official names for your tax codes here i.e 194C, 194J 192 etc.  The official withholding tax key will assign to relevant withholding tax code.


3.     Recipient Types The type of recipient categorizes the vendor i.e company/non-company


4.     Business Places/section code Create a business place for each  (TAN), which is responsible to deduct tax and report to tax authority accordingly. A system object that represents the organizational unit responsible for collecting and remitting withholding tax, as identified by a TAN. When you post a document with a withholding tax item, enter the section code in order to make sure that the tax item is assigned to the correct TAN.


5.     Withholding Tax Type  The withholding tax type governs the way in which extended withholding tax is calculated and is defined at country level. There two type of withholding tax type, withholding tax types for calculating tax at invoice posting and another one for calculating tax at payment posting. You must enter the withholding tax type in the customer/vendor withholding tax master data .


6.     Withholding Tax Code  The withholding tax code determines the withholding tax percentage and tax base. You make the settings for each country and withholding tax type. You can therefore define as many withholding tax codes as required for each withholding tax type.


7.     Posting Define account determination for the tax.


8.     Assign Withholding Tax Types to Company Code. Now specific company code can deduct tax from business partner against specific tax type for specified period.

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44 Comments

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      1. Diwa p

        Hi Nakul,

        please help me.

        our Client has requirement in CIN. client wants to calculate TDS up to 10000000   3%. If it exceeds 10000000  tax rate 10%. as you mentioned in post about the configuration i have configured according to you. in that configuration i am able  to restrict the amount upto 10000000 3% where as after 10000000 i can able to restrict this to 10%. please help me on this.

        Regards

        Diwa

        (0) 
          1. Nakula Charan Das Post author

            Hi Diwa

            Step 1 : Check tax type.  In tax type select appropriate Accumulation type. If your company use calender year, accumulation type will be “per calender years” otherwise select “per year, starting with month” and enter starting month.

            Step 2: Check tax code. dont put any tax rate in calculation area. select w. tax from.

            Step 3: enter tax formula for the tax code like:

            To base amount          whldtax              Redrt        Redu. Base amt

            10000000                      3,00                               

            999999999999               10,00                              10000000

            save

            Impact: in a year, upto 10000000 rate will be 3%, if the amount exceed this amount, amount above 10000000 will be applied 10%

            Regards

            Nakul

            (0) 
      1. Diwa p

        Hi Nakul,

        i followed your configuration its working fine.here  we have one scenario we had set limit for

        up to 1000000 3 % more than 100000 tax rate will be 10%. here we have posted invoice for 200000 entry will be  expenses a/c…..Dr   200000

                                           vendor a/c..Cr  187000

                                           Tds payable Cr 13000

        here user wants two tds gl account one tds gl account for exemption  amount that is  3000 another gl account with 10000  how to do it Please help me on this.

        Thanks&Regards

        Diwa

        (0) 
        1. Nakula Charan Das Post author

          Hi Diwa

          As mentioned it is not possible in SAP currently.

          (different tax rate for certain period for specific amount)

          Two way to control TDS slabs.

          First: Define two tax code, one for 3% and another 10%. In vendor master mention time period for the tax code.

          Second: use formula for different tax code

          Regards

          Nakul

          (0) 
  1. Soumya Ranjan

    Hi Nakul,

    It is indeed a good document. Could you please guide me on below requirement of client. My client is into construction business in Odisha. Here they deduct labour cess @ 1% from total bill from vendor along with a fixed percentage of 5% as security deposit , tds as well as WCT. My doubt is can we treat the fixed deposit of 5 % and labour cess 1% as the we deduct TDS or is there any other way around in SAP. Please guide.

    (0) 
  2. Shiva Maryala

    Hi Nakula,

    DO we have any Notes or Patches released from SAP for EWHT in 2013. If yes can you provide me the details of the same.

    Thanks,

    M.Shiva

    (0) 
  3. Tarek Hossain Chowdhury

    Hi


    Thanks for your document.

    In India and Bangladesh same withholding tax process is active.


    How can we execute the accumulation invoice calculation process during calculation of withholding tax rate? 


    Here is the example –

    Tax code 52H

    First 200,000/- Nil

    From 200,001 to 500,000/-            1%

    From 500,001 to 1,000,000/-         2%

    From 1,000,001/- to 3,000,000/-    3%

    Over 3,000,000/-                          4%

    Period is from 1st July to 30th June (In Bangladesh TAX period)

    Vendor submit 1st invoice BDT 500,000/- 

    Date 1st July

    Withholding TAX is BDT 5,000/-

    Vendor submit 2nd invoice BDT 1,500,000/- 

    Date 1st Aug

    Now total invoice amount is BDT 500,000/- + 1,500,000/- = 2,000,000/-

    So that TAX slab will be 4th Slab and withholding tax rate 3% will be applicable.

    Withholding TAX will be BDT 40,000/- (BDT 45,000 – BDT 5,000)

    Regards

    Tarek H Chowidhury

    (0) 
  4. Jay paul

    Hi Nakula sir,

    i want wht calculate based on formula , my system not calculate properly , For your ref find the below details of rate and amt

    Amt                                                           TDS  Rate

    Rs O TO  RS 1000                                       0 %

    RS.1001 to 2000                                          20%

    RS  2001 to 3000                                         30%

    When i am posting Invoice Rs 2000  TDS amt is Rs 400 ( 2000 *20%)   but my system is calculating Rs 300 TDS, i more thing i am using formula based WHT calculation any rule ?

    Regards

    jay

    (0) 
  5. Fatima Khan

    HI Nakula

    Can you recommend this solution?

    Scenario 1: Our business requirement is to modify or override the tax rate. let say for this year for vendors that belongs to Canada must be with held 40%

    My Solution:

    1) I have defined the “tax code” = 01=   with 100%

    2) in the vendor master data

         a) With holding tax type = 42

         b) With holding tax code = 01

         b) Exemption% field = 60% so the system will calculate 100 – 60 = 40% (but in this way      then i have to give to Populate the “exemption certificate no ” also, q) can we just      choose our own exemption certificate no? because by default this vendor is not      exempted at all. And the exemption no and the exemption % will also hit the      table, Q) what will be the impact on the legal reporting since it will hit the tables      as well. do you think that it can be a good proposal or solution? or can      you recommend something more easy by using formula option?

    Thanks in Advance

    (0) 
  6. Monica Singhal

    Hi Nakula,

    Thanks for sharring Useful Information.
    I have to Define Multiple(250) Withholding Tax type ,Can you please suggest the Method to do it.
    FYI we are migrating from Oracle to S/4 HANA.

    Thanks in Advance.

    (0) 

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