Dear All,


based on the below circular I did some configuration changes and tested with two case scenarios. Please check if this is helpful


Purpose:Based on the below circular, certain modifications have been effected to meet the conditions. The document also projects the accounting treatment in SAP for payment made under section 194J where Service tax is explicitly mentioned or not mentioned in the invoice.

 
C
ircular 01/2014 dated 13.01.2014 reproduced hereunder.

 

F. No_ 275/59/20124T(B)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

Circular No.01/2014

New Delhi, the 13th January-‘2014

Subject: TDS under Chapter XVII-,13 of the Income-tax Act, 1961 on service tax component comprised in the payments made to residents – clarification regarding

  1. 1. The Board had issued a Circular No.4/2008 dated 28-04-2008 wherein it was clarified that tax is to be deducted at source under Section 194-1 of the Income-tax Act, 1961 (hereafter referred to as ‘the Act’), on the amount of rent paid/payable without including the service tax component. Representations/letters has been received seeking clarification whether such principle can be extended to other provisions of the Act also.
  2. 2. Attention of CBDT has also been drawn to the judgement of the Hon’ble Rajastlian High Court dated 01.07.2013, in the case of CIT(TDS) Jaipur vs Rajasthan Urban Infrastructure (Income-tax Appeal No.235, 222, 238 and 239/2011), holding that if as per theterms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services, no TDS is required to be made on the service tax component u/s 194J of the Act.
  3. 3. The matter has been examined afresh. In exercise of the powers conferred under section 119 of the Act, the Board has decided that wherever in terms of the agreement/contract between the payer and the payee,the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid/payable without including such service tax component.
  4. 4. This circular may be brought to the notice of all officers for compliance.

 
   
Configurational Changes


**** (New)→Withholding Tax→Extended Wtt→Define Wtt Type for invoice posting


/wp-content/uploads/2014/02/1_379395.jpg

Change the Settings from Gross Amount to Net Amount as shown below.



/wp-content/uploads/2014/02/2_379396.jpg


By considering the following example, we will take two scenarios,


►Service Amount :     10000

►Service Tax @12%:     12000

►Edu Cess @2%:     240

►Sec Edu Cess 1%:120

►Total :112360



Scenario 1 – where the bill amount is 112360 and service tax component  is not shown separately


TDS will be

11236

Net Payment to vendor

101124

 
At the time of executing the invoice (FB60/Miro), user is required to select the NIL tax code, system will

automatically pick up the base amount for calculation of TDS if the relevant tax code is maintained in the vendor master.


/wp-content/uploads/2014/02/3_379424.jpg


Scenario 2 – where the bill amount is 112360 but the service tax component is shown separately

At the time of executing the invoice (FB60), user is required to select the relevant service tax code ,system will pick up the net amount for calculating the TDS by excluding the service tax amount. The relevant TDS tax code should be maintained in vendor master


/wp-content/uploads/2014/02/4_379425.jpg


I hope this will help you in understanding the new changes.


best regds

Subha

To report this post you need to login first.

25 Comments

You must be Logged on to comment or reply to a post.

  1. NITIN CHAURASIA

    Hi Shubha,

    It is working fine for FB60 but while posting with MIRO for – where the bill amount is 112360 but the service tax component is shown separately it is showing CO Account assignment required for XXXXXXX GL COde

    Our scenario is to Show service tax as expense

    Please suggest  us it is urgent.

    Regards

    Nitin Chaurasia

    (0) 
    1. Subhadeep Das Post author

      Hello,

      This error I think is more to do with OKB9 settings. Pls check and assign your Cost element. It should work.

      best regds

      Subha

      (0) 
      1. NITIN CHAURASIA

        Dear Abhai,

        I had already tried with OKB9 but in MIRO the Cost center is not getting from OKB9 it fails.

        Please share if any other solution for miro.

        Regards

        NITIN

        (0) 
    2. Subhadeep Das Post author

      Hi,

      what is the GL like ? is it a tax gl or expense GL ? Pls provide me the screen shot of the MIRo and its simulation. will try to solve it.

      best regds

      Subha

      (0) 
      1. Aravind Boddupalli

        Hi Subha

        Since all the Invoices may not have ST component is it not correct to consider and alter only the Witholding Tax Base Amount to get the desired result keeping the existing config as it is ?  Pl opine.

        Regds

        (0) 
        1. Subhadeep Das Post author

          Hello Aravind,

          that will create an additional process for the client to feed it the base amount manually. moreover since this rule is now extended to all other tax codes, it will become a problem for client to enter the base amount each time he enters the invoice. Hence sooner or later you will get request from the client to automate the base amount thing.

          best regds

          Subha

          (0) 
  2. NITIN CHAURASIA

    Dear Shubhadeep,

    Thanks for your reply I have tried OKB9 maintainted values for respective cost element but in MIRO OKB9 doesnt triggers. I was suggested from some other thread to create substitution rule for this and call OKB9 in substitution. But this is wrong method coz TAX implications are SAP CIN standard it should flow cost centre for tax line items if not satisfied planning to write to SAP. Any other solution please suggest

    Regards

    Nitin

    (0) 
      1. ßhģ Ġǿwdâ

        NITIN CHAURASIA


        As per explained above do change for you with holding tax types.

        path is:

        Financial Accounting: Financial Accounting Global Settings–> Withholding Tax –> Extended Withholding Tax –> Calculation –> Withholding Tax Types–> here for WTT for Invoice postings.

        (0) 
  3. sandhya sap

    Hi,

    Even I am also doing the same configuration but its working fine in MIRO and calculating the TDS on net amount whereas in FB60 its calculating wrongly but when I select FB00 tax on net amount its giving me proper result, so my question is that after doing setting for net amount in WHT tax type do we need to change the user parameter as well ???

    (0) 
    1. Subhadeep Das Post author

      HI,

      not sure on what how you have configured, basically when service tax component is not shown separately , you need not select any tax code at the line item level or at max select V0 (Nil Tax). On the other hand if service tax component is shown  then you need to select the tax code. Pls check how if you are selecting the tax code properly. Otherwise there should not be any difference in the output whether you do a FB60 or a MIRO.

      best regds

      Subha

      (0) 
  4. NITIN CHAURASIA

    HI Subha,

    I think  is there any Document Splitting Error for me

    Service tax portion is to be debited separately. but giving error for profit center. the system couldn’t get cost centre for Service tax line item.

    Please suggest.

    Regards,

    Nitin Chaurasia

    (0) 
  5. Shakeel Ahmed

    HI Subha,


    i am facing the same problem that TDS should be deducted without service tax , if i make changes in withholding tax type  as u said in above solution will the system impact in any other area in sap i have a question  ???


        plz reply


    Regards,

    Ahmed

    (0) 
    1. Subhadeep Das Post author

      Hi,

      if you make any changes within WTT and WTC, it should not be impacting in any other area. You can always test this in QAS however.

      best regds

      Subha

      (0) 
  6. Nisit Shah

    Simple but informative document..!!

    Keep sharing these type of legal change updates & how to configure it existing system…

    Thanks

    (0) 
  7. Piratla Siva Surya Karthikeya

    Hi Sir,

    It’s so useful and aspiring as a consultant to keep track of changes happening in statutory part as per the Government.

    Thanks a lot for your precious time in making as well as sharing both configuration and test part of the document.

    Regards

    Karthikeya

    (0) 

Leave a Reply