Step by Step document for Withholding Tax configuration
Withholding Tax is also called as retention tax. Its requirement of Government to deduct or withhold a particular percentage from paying to the vendor and pay such amount to the Government on behalf of other person. It’s a kind of Indirect Tax.
All the configurations for the Withholding Tax is done in the following Tab only:
· Define Business Places: Business Place is to be created for each Tax Deduction Account Number (TAN) that company has.
· Define Section Codes: In India for each Business Place a Section Code is created and mapping is done on one to one basis. In Section code information about Local Tax office as well as District Tax office can be made.
The flow for the configuration is such that firstly the Withholding Tax Key (e.g. 194C) is to be created then under that Withholding Tax type is created one at the time of invoice and other at the time of payment and then based on the different rates prevailing in the Income tax Act, different Tax Codes are to be created (e.g. for 194C, 2 different rates are there in the Act, one is 1% TDS on the contract basis and second is 2% TDS on the sub-contract basis)
E.G. 194C à Invoice / Payment Posting àC1/C2 based on different rates.
Define Withholding Tax Keys: Withholding Tax key is used to identify different withholding tax types. A name is to be given with the official key.
Withholding Tax can be deducted at two point of time; it can be either at the time of invoice or at the time of payment. So for this Withholding tax types are to be created one for invoice and second for payment.
· Define Withholding tax Type for Invoice Posting: Here the withholding tax type is assigned for the invoice purpose and the same will not get triggered at the time of Payment Posting.
· Define Withholding Tax Type for Payment Posting: Here the withholding tax type is assigned for the payment purpose and the same will not get triggered at the time of Invoice Posting. The withholding information is to be provided while posting for such document for Withholding Tax payment.
For each Withholding Tax Type, according to the different rates available in the Income tax rates, the different Withholding Tax Codes are to be created based on the Withholding Tax Type.
· Define Withholding Tax Code: In withholding tax code, different rates are maintained and on what basis the TDS should be deducted is maintained.
Here above configuration is done and on the above basis the TDS amount will be deducted from the invoice or payment.
· Defining Document Type for Challan:
Here we maintain the Document type for posting Challan.
· Define Number Ranges for the Challans create: Here this is important on the basis that the client requires that he want details about the combination of Section Code and the Withholding Tax Key basis, so then different number range can be assigned and so he will be able to know the TDS Challans that are generated for each area.
· Maintain Number Groups: Here a Number Group is assigned to the combination of Company Code, Section Code and Withholding Tax Key. From below we can see that Number Group ‘01’ is assigned to the combination of AP01 and all the Tax Types.
· Assign Number Ranges to Number Groups: In this step of configuration, the number Group created above is assigned to an Internal Number Range for the challans.
· Maintain Number Ranges: Here we maintain the number ranges for Challans. The number groups are assigned to number range and these number ranges are maintained for fiscal years which are consumed while challan posting.
Here we Edit Groups by clicking on Groups button for defining number ranges specific to Number groups.
For example, if we want to maintain the number range for number group 01, then we have to select the number group 01 and then insert the number range for the same.
Here we can add or delete the number ranges for particular fiscal years.
· TDS JV Configuration:
For passing the TDS JV for the rectification amount, we need to define the Document Type and the GL account for JV Losses. Following are the configuration nodes for the same.
The Document types are configured here in the following Node.
The JV Losses GL accounts are configured in the following Node.
Above is the full configuration document for the purpose of implementing Withholding Tax in the system.