(IND) Setting Up and Processing Tax Deducted at Source for India

This chapter provides an overview for setting up and processing tax deducted at source (TDS) transactions, and discusses how to:

Set up TDS organizational details.
Set up TDS processing.
Process TDS transactions.
Report TDS transactions.

Understanding Tax Deducted at Source

TDS is a form of withholding with complex rules and regulations. Different rules apply to different types of payments. TDS requires that you calculate withholding when you book the liability (meaning, when you post the voucher) or when you make the payment, whichever is earlier. Some types of withholding are calculated only after you reach or exceed a set minimum basis amount. When the minimum basis amount is exceeded, the system calculates withholding for prior amounts and future transactions. TDS also has a surcharge in addition to the calculated withholding.

Payables provides a withholding architecture that enables you to meet the withholding requirements for India. You can easily calculate surcharge and tax amounts and report accurate TDS information when required. Payables has modified several pages to enable TDS processing.

This diagram illustrates the process flow of TDS in Payables:

TDS process flow

Note. The voucher must be paid and the payment posted prior to the withholding posting.

Setting Up TDS Organizational Details

To set up your TDS organizational details, use the following components:

Organization Details (ORG_RGSTN_DTL).
Tax Location (ORG_TAX_LOC).
Certificate Numbering (WTHD_CRTFICATE_NUM).

This section discusses how to:

Define income tax registration details.
Define tax location details.
Set up automatic TDS certificate numbering.

Note. Setting up TDS organizational details is similar to setting up your organizational structure for excise duty, sales tax, and customs duty for India.

Pages Used to Set Up TDS Organizational Details

Page Name	Object Name	Navigation	Usage
Organization Details	ORG_RGSTN_DTL	Set Up Financials/Supply Chain, Common Definitions, Excise and Sales Tax, Organization details, Organization Details	Specify a permanent account number (PAN), PAN ward, and PAN circle for TDS processing.
Tax Location - Tax Location Definition	ORG_TAX_LOC	Set Up Financials/Supply Chain, Common Definitions, Excise and Sales Tax, Tax Location, Tax Location Definition	Specify a TAN number, TAN ward, and TAN circle for TDS processing.
Certificate Numbering	WTHD_CRTFICATE_NUM	Vendors, 1099/Global Withholding, Global Withholding Reports, TDS Certificate Numbering, Certificate Numbering	Define the certificate numbering for each Payables business unit and withholding entity.

Defining Income Tax Registration Details

Access the Organization Details page.

PAN Number (permanent account number)	Enter the number assigned by the income tax authority to identify your organization's tax returns. This number must be a 20-digit alphanumeric value.
PAN Ward and PAN Circle	Enter the location of the income tax offices to which your organization submits its taxes. Tax authorities assign these values. Wards and circles can change at the discretion of the income tax authority.

See Also

Defining Organization Details

Defining Tax Location Details

Access the Tax Location - Tax Location Definition page.

TAN Number	Enter the code assigned to you by the tax authorities that represents the location of the income tax office where your taxes are paid.
TAN-Ward and TAN-Circle	Enter the ward and circle associated with your TAN. Tax authorities assign these values. Wards and circles can change at the discretion of the income tax authority.

See Also

Defining Tax Locations

Setting Up Automatic TDS Certificate Numbering

Access the Certificate Numbering page.

Pre Fix 1

Specify, for example, a company name or a Payables business unit short name.

Pre Fix 2

Specify, for example, the financial year.

Start From Number

Specify a number from which the system begins assigning a ten-digit serial number for each Payables business unit.

Note. Statutory returns must be filed separately for each TAN number.

Setting Up TDS Processing

To set up your TDS processing, use the following components:

Withhold Rule (WTHD_RULE).
Withhold Type (WTHD_TYPE).
Withhold Jurisdiction (WTHD_JURISDICTION).
Vendor Categories (WTHD_VNDR_CAT).
Withholding Entity (WTHD_ENTITY).

This section discusses how to:

Define TDS surcharges.
Define types and classes.
Define jurisdiction.
Define vendor categories.
Define TDS withholding entities.
Define the PAN and ward numbers.
Define the PAN and ward numbers for vendors.

Note. Setting up TDS processing is similar to setting up your global withholding environment.

See Also

Processing Withholding in Payables

Pages Used to Set Up TDS Processing

Page Name	Object Name	Navigation	Usage
Withhold Rule	WTHD_RULE	Set Up Financials/Supply Chain, Product Related, Procurement Options, Withholding, Rules, Withhold Rule	Establish the rules that determine the actions to be taken during withholding. For example, you can create rules to define the amount of withholding and to determine different percentages based on the size of the transaction amount.
Withhold Type	WTHD_TYPE	Set Up Financials/Supply Chain, Product Related, Procurement Options, Withholding, Types and Classes, Withhold Type	Specify a class and description for various withholding types. Select Contract Reference if the withhold class requires a contract reference on the voucher.
Withhold Jurisdiction	WTHD_JURISDICTION	Set Up Financials/Supply Chain, Product Related, Procurement Options, Withholding, Jurisdictions, Withhold Jurisdiction	Define withholding jurisdictions for the withholding type.
Vendor Categories	WTHD_VNDR_CAT	Set Up Financials/Supply Chain, Product Related, Procurement Options, Withholding, Vendor Categories, Vendor Categories	Define the relationship that exists between the withholding entity and your vendor. As jurisdiction and classification do, this relationship affects your withholding percentages.
Withholding Entity	WTHD_ENTITY	Set Up Financials/Supply Chain, Product Related, Procurement Options, Withholding, Withholding Entities, Withholding Entity	Define your withholding entities (tax authorities). The withholding entity component ties the withholding information together.
Withholding Entity - Entity Fields - Vendor	WTHD_ENTITY_FIELDS	Set Up Financials/Supply Chain, Product Related, Procurement Options, Withholding, Withholding Entities, Withholding Entity - Entity Fields - Vendor	Indicate which information the tax authority (entity) needs for your vendors.
Withholding Entity - Entity Fields - Business Unit	BU_WTHD_ENT_FLDS	Set Up Financials/Supply Chain, Product Related, Procurement Options, Withholding, , Withholding Entities, Withholding Entity - Entity Fields - Business Unit	Indicate which information the tax authority (entity) needs for your business unit.
Withholding Entity - Chartfields	WTHD_ CF	Set Up Financials/Supply Chain, Product Related, Procurement Options, Withholding, Withholding Entities, Withholding Entity - Chartfields	Define the accounting entries to record the TDS amounts.
Vendor Information - Location	VNDR_LOC	Vendors, Vendor Information, Add/Update, Vendor, Location	Enter one or more locations for the vendor. Vendor location is a default set of rules, or attributes, which define how you conduct business with a particular vendor.
Withholding Vendor Information	VNDR_GBL_OPT_SEC	Click the Global/1099 Withholding link on the Vendor Information - Location page.	Define withholding information and reporting information for the vendor location.
Invoice Information	VCHR_EXPRESS1	Accounts Payable, Vouchers, Add/Update, Regular Entry, Invoice Information	Enter or view invoice information, including invoice header information, nonmerchandise charges, and voucher line and distribution information.
Withholding Information	VCHR_WTHD_EXP	Click the Withholding link on the Invoice Information page.	Override the withholding for the individual voucher lines, and specify a contract reference number if applicable.

Defining TDS Surcharges

Access the Withhold Rule page.

SurCharge % (surcharge percent)

Enter a surcharge that is to be calculated on top of the tax amount, if required.

See Also

Defining Withholding Rules

Defining Types and Classes

Access the Withhold Type page.

Contract Reference

Select whether the withhold class requires a contract reference on the voucher.

Note. The Contract Reference field is mandatory on the Voucher Withholding Information page, if you select Contract Reference.

Defining Jurisdiction

Access the Withhold Jurisdiction page.

Jurisdictions introduce an additional level of classification between the withholding type and withholding class. Jurisdiction also enables you to define different withholding percentages based on where the vendor is located, as well as on the classification (or activity) of a given transaction.

Withholding Jurisdiction

Specify any jurisdictions that belong to this withholding type.

See Also

Defining Withholding Jurisdictions

Defining Vendor Categories

Access the Vendor Categories page.

Vendor Category

Enter any category that belongs to this withholding type.

See Also

Defining Vendor Categories

Defining TDS Withholding Entities

Access the Withholding Entity page.

Define the withholding entity on three pages. Enter the vendor information for the entity, define the file layout, currency code and rate, and applicable withholding rules and types. You can also use the Withholding Entities page to determine whether to create a separate withholding payment, to set up accounting ChartField parameters and basis for withholding, as well as to tie business unit and vendor categories.

Withholding Entity

Apply Withholding

Select either Payment or Vchr Post (voucher post) to determine when withholding occurs. The default value is Payment.

Round Option

Select to indicate how the system should round to whole monetary amounts. Options are:

Down: Select this value to round amounts down to the next whole number, regardless of actual decimal amount.
Natural: Selecting this value rounds decimal amounts of less than 0.5 down to the next whole number, and rounds amounts of more than 0.5 up to the next whole number. Note that this option uses a function to determine the decimal precision to which to round the amount, depending on the installed currency configuration.
TDS: Selecting this value rounds decimal amounts to the appropriate zero decimal, regardless of the installed currency configuration.
Up: Select this value to round amounts up to the next whole number, regardless of actual decimal amount.

Main Information Tab

Select the Main Information tab.

Create Withholding Payment

Select if you want to create separate payments for the withholding.

Otherwise, withholding is not calculated, although basis amounts are reported.

Note. Creating a zero percent withholding rule accomplishes the same result.

Withholding Rule

Select the withholding rule to which these categories apply.

Hold Payment

Select to hold these payments. The available options are:

Hold All: Hold both the payment and the withholding amount.

No Hold: Do not hold the payment or withholding amount.

Wthd Only: Hold the withholding amount only.

You can override the option you select here at the vendor level on the Withholding Vendor Information page.

Note. If you wish to hold the vendor’s payment, you can set the rule at zero percent and set the hold option to Hold All.

Additional Information Tab

Select the Additional Information tab.

Min Basis (minimum basis) and Min Withhold (minimum withhold)

These fields are not used for TDS processing. Leave these fields blank.

Note. The actual threshold amount is checked against the withholding rule.

Payment Terms ID

Enter a term to indicate when the withholding portion of the voucher will be paid to the withholding entity.

Cumulative

Select to indicate that the system should monitor voucher totals until it reaches the threshold amount that you specified on the withholding rules. Once it reaches that amount, the system calculates withholding on previous vouchers and on future vouchers as they are entered.

Note. When the cumulative flag is not selected, the system calculates withholding on vouchers once the threshold limit is crossed but does not include previous vouchers.

See Also

Defining Withholding Entities

Defining the PAN and Ward Numbers

Access the Withholding Entity - Entity Fields - Vendor page.

The Income Tax Department provides the permanent account number, which identifies you to the Income Tax Office.

PAN No. (permanent account number) and PAN Ward

Select Required to make it mandatory that users enter the permanent account number and the permanent account number ward when they enter withholding information and to make the fields available on the Withholding Vendor Information page.

Defining the PAN and Ward Numbers for Vendors

Access the Withholding Vendor Information page.

Note. Column order for grids may vary by implementation. All columns may not be visible.

PAN No.	Enter a permanent account number for this vendor.
PAN Ward	Enter a permanent account number ward.

See Also

Defining Withholding Options

Processing TDS Transactions

This section discusses how to:

Review and enter withholding information for vouchers.
Post vouchers.
Process payments.
Post payments.
Calculate withholding.

Note. Processing TDS transactions is similar to processing withholding transactions. We've documented the additional steps required for TDS processing in this section.

See Also

Processing Withholding in Payables

Pages Used to Process TDS Transactions

Page Name	Object Name	Navigation	Usage
Withholding Information	VCHR_WTHD_EXP	Click the Withholding link on the Invoice Information page.	Override the withholding for the individual voucher lines, and specify a contract reference number, if applicable.
Voucher Posting Request	PST_VCHR_RQST	Accounts Payable, Batch Processes, Vouchers, Voucher Posting, Voucher Posting Request	Initiate the Voucher Posting Application Engine process (AP_PSTVCHR).

Reviewing and Entering Withholding Information for Vouchers

Access the Withholding Information page.

Specify a contract reference number, if applicable. Override withholding information for the individual voucher lines.

Note. The functionality for regular and prepaid vouchers for TDS processing is similar to processing general withholding transactions. While applying the prepayment against a voucher, the computation of TDS is the difference between the voucher TDS amount less the prepayment TDS amount.

During final voucher processing, Payables verifies that both the type of payment (type and class) under the voucher and prepayment are the same.

Processing Withholding in Payables

Posting Vouchers

Access the Voucher Posting Request page.

The Voucher Posting Application Engine process (AP_PSTVCHR) performs the withholding calculations. The Voucher Posting process calls the Withhold Calculation Application Engine process (AP_WTHDCALC) to determine whether withholding vouchers exist.

Note. After you pay a voucher, you cannot unpost it.

Processing Payments

Payment processing for TDS involves the following modifications:

Payment Selection and Creation

You must first post vouchers so withholding can be calculated; otherwise, the system excludes them from the pay cycle.

Withholding Calculation

A surcharge field computes the surcharge based on the tax amount calculated based on the withholding rule that you defined during TDS setup.

See Also

Running and Managing Pay Cycles

Posting Payments

Accounting Entries are created during payment posting.

Vendor Payment

This table lists the accounting entries that are to be created for a vendor payment:

Account	Debit	Credit
AP Liability	8980
Bank		8980

TDS Payment

This table lists the accounting entries that are to be created for a TDS payment:

Account	Debit	Credit
Withholding Liability	1020
Bank		1020

Calculating Withholding

The Withhold Calculation process monitors the withholding basis amount. Select the Cumulative option on the Withholding Entity page to indicate that the system should monitor voucher totals until it reaches the threshold amount that you specify.

Cumulative Option Selected

When a vendor’s vouchers sum exceeds the threshold amount for a contract or for a period, the system calculates withholding for that vendor based on the total accumulated amount including the vouchers entered previously. After that vendor reaches the threshold amount, the system calculates withholding on every subsequent voucher based on the gross payment amount or transaction amount.

For example, the threshold amount is 10,000 INR for a given withholding rule and the cumulative checkbox is selected. You create 3 vouchers: V1 for 8000 INR, V2 for 7000 INR, and V3 for 5000 INR for withholding period 1. When V1 is voucher posted, no withholding will be calculated since the voucher total amount has not reached the threshold of 10,000 INR for period 1. When V2 is posted, the withholding will be calculated based on 15,000 (8000 INR from V1 + 7000 INR from V2) since the voucher total has exceeded the threshold. When V3 is posted, the withholding will be calculated for the voucher amount (5000 INR).

Cumulative Option Not Selected

However, if you do not select the Cumulative option, the system bases the withholding calculation on the withholding basis amount and the period withholding tier rule defined in the system.

Scheduled Pay Date

The system determines the scheduled pay date based on the accounting date if withholding is called at the time of voucher posting . The system stores withholding basis and withholding amounts to monitor the total amounts.

Note. The Payables calculation module calculates withholdings at voucher posting or at payment processing, depending on the withholding calculation setting on the withholding entity and the voucher. Calculation for TDS transactions are performed at voucher posting. For those withholding transactions calculated at payment posting, the system determines the scheduled pay date based on the payment date.

See Also

Reviewing Withholding Calculations

Reporting TDS Transactions

This section lists the pages used to report on TDS transactions.

Pages Used to Report TDS Transactions

Page Name	Object Name	Navigation	Usage
Withhold Report Post	WTHD_RPT_POST	Vendors, 1099/Global Withholding, Global Withholding Reports, Create Reporting Information, Withhold Report Post	Run the Withholding Reporting Application Engine process (AP_WTHDRPT) to populate the Withholding Report table with data from the Withholding Transaction table based on your report setup. Select the Withhold Certificate check box to generate the necessary information for TDS certificates
TDS Reports	RUN_APY8070	Vendors, 1099/Global Withholding, Global Withholding Reports, TDS Reports, TDS Reports	The TDS Register (APY8070) contains information that is similar to the TDS Challan Information report (APY8085). Use the TDS Register to view detailed information for each withholding class and vendor on TDS applicable vouchers and related payments issued to the withholding entity. It also includes total amounts of applicable invoice on which tax has not been deducted. Use the TDS Challan Information report to provide information for the TDS Challan. Generate the TDS Challan Information report every month when you pay the government TDS for that month. Note. Run the Withholding Reporting Application Engine process (AP_WTHDRPT) prior to running the TDS Register.
TDS Certificates	RUN_APY8080	Vendors, 1099/Global Withholding, Global Withholding Reports, TDS Certificates, TDS Certificates	The TDS Certificate (APY8080) is issued by the payer for deduction of tax. Use the TDS Certificate for proof of deduction of income tax by the payer to the payee. The Work Contract Certificate (APY8090) is issued by the payer for works contract. Use the Work Contract Certificate to issue to the payee for proof of deduction of tax on Work Contract.

See Also

Payables Reports