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.
Circular 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
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. 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. 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. 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. This circular may be brought to the notice of all officers for compliance.
**** (New)→Withholding Tax→Extended Wtt→Define Wtt Type for invoice posting
Change the Settings from Gross Amount to Net Amount as shown below.
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
Scenario 1 – where the bill amount is 112360 and service tax component is not shown separately
TDS will be
Net Payment to vendor
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.
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
I hope this will help you in understanding the new changes.