Setting Up Tax Deducted at Source (TDS), as per the Provisions of the Income Tax Act, 1961
Business Central has included Tax Deducted at Source (TDS) Feature to Indian Localization.
TDS means Tax Deducted at Source. The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government
Income from several sources is subjected to TDS. Presently this concept of TDS is also used as an instrument in enlarging the tax base. Some of such incomes subjected to TDS are salary, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, and payments to non-residents.
The Income Tax Act, 1961 specifies that tax deduction is to be made, for the specified incomes, on credit or on payment, whichever is earlier.
Setting up TDS
TDS has two different types of setups
- Automatic - These setup are done through Tax Engine.
- Manual - These setups are done manually by the business users.
Following is the list of setups which will be pre-configured with help of Tax Engine
- Tax Types
- Tax Entities
- Components
- Attributes
- Rate Setup
For more information about Automatic Setup, see Tax Engine Information.
The following are required to be setup manually
- TDS Rate
- Tax Accounting Period
- T.A.N
- Assessee Code
- TDS Section
- Concessional Code
- TDS Nature of Remittances
- Act Applicable
- TDS Posting Setup
- TDS Rounding Precision
- TDS in Vendor Master
- TDS in Location Master
- TDS in Company Information
- TDS in State Code
To set up TDS rates
Rate of TDS is defined in combination of TDS section and assessee code.
Choose the
icon, enter Tax Type -> TDS -> Action -> Tax Rates, and then choose the related link.Fill in the fields as described in the following table.
Field Description Section Code Specifies the TDS section code. Assessee Code Specifies the assessee code. Effective Date Specifies the date from which rate will be effective. Concessional Code Specifies the concessional code. Nature of Remittance Specifies whether the nature of remittance is applicable or not. Act Applicable Specifies the applicable act. Currency Code Specifies the currency code. TDS % Specifies the TDS rate. Non PAN TDS % Specifies the TDS rate in case of non availability of PAN. Surcharge % Specifies the surcharge rate. eCESS % Specifies the eCess rate. SHE Cess % Specifies the SHE Cess rate. Surcharge Threshold Amount Specifies the threshold amount applicable for surcharge. TDS Threshold Amount Specifies the threshold amount applicable for TDS. Per Contract Value Specifies the per contract value.
To set up tax accounting period.
Tax Accounting period and quarters need to be defined for TDS calculation.
Choose the
icon, enter Tax Acc. Period Setup, and then choose the related link.Fill in the fields as described in the following table.
Field Description Code Enter the valid tax type. Description Specify the description of the tax type. Select the Tax Type -> Action -> Tax Accounting Period -> Create Year, fill the following information and accounting period will be created.
Field Description Tax Type Select the valid tax type. Starting Date Specify the starting date of the accounting period. No. of Periods Specify the number of periods. Period Length Specify the length of the period.
To set up T.A.N
Tax Deduction Account Number (T.A.N) allotted to a company can be more than one, depending on the number of branch locations from where the company files its returns. All the account numbers allotted to a company need to capture here.
Choose the
icon, enter T.A.N Nos., and then choose the related link.Fill in the fields as described in the following table.
Field Description Code Enter the valid registration number provided by authority. Description Specify the description of the registration number.
Tip
It is mandatory to enter the T.A.N, on all TDS Transactions.
To set up assessee code
Income Tax Act 1961 defines 'Assessee' as a person by whom any tax or any other sum of money is payable under this Act. The rates of TDS are different for different types of Assessee.
Choose the
icon, enter Assessee Codes, and then choose the related link.Fill in the fields as described in the following table.
Field Description Code Enter the valid Assessee Code, for example, IND, COM. Description Enter the description of the assessee code. Type Select the type of the assessee from drop down list as Company or Others.
Tip
Type should be selected correctly while creating Assessee codes as it will reflect in eTDS returns.
To set up TDS section
TDS Section represents the various sections under which tax deduction takes place as per the Income Tax Act 1961.
Choose the
icon, enter TDS Sections, and then choose the related link.Fill in the fields as described in the following table.
Field Description Code Enter the valid TDS Section applicable as per the Income Tax Act, 1961. Description Enter the description of the mentioned TDS Section. e-TDS Specifies the section code to be used in the TDS return.
Tip
User can create any number of sub-sections for a section using Add Sub Section function.
To set up concessional codes
Concessional codes are used for cases authorized for concessional rates exclusively defined by the government.
Choose the
icon, enter Concessional Codes, and then choose the related link.Fill in the fields as described in the following table.
Field Description Code Enter the valid Concessional Codes applicable as per the Income Tax Act. Description Enter the description of the mentioned Concessional Codes.
To set up TDS nature of remittances
Specifies the type of remittance.
Choose the
icon, enter Nature of Remittances, and then choose the related link.Fill in the fields as described in the following table.
Field Description Code Enter the valid nature of remittance code applicable. Description Enter the description of the code.
To set up act applicable
Specifies the Act under which income from Non-resident Indians will be taxed either the Income Tax Act (IT-Act), or as per the relevant rates prescribed in the relevant Double Tax Avoidance Agreement (DTAA).
Choose the
icon, enter Act Applicable, and then choose the related link.Fill in the fields as described in the following table.
Field Description Code Enter the valid Concessional Codes applicable as per the Income Tax Act, 1961.
To set up TDS posting setup
Specifies the general ledger account for each TDS Section defined in the system. System will update the TDS payable amount in the defined general ledger account.
Choose the
icon, enter TDS Posting Setup, and then choose the related link.Fill in the fields as described in the following table.
Field Description TDS Section Enter the valid TDS Section. Effective Date Specifies the starting date. TDS Account Specifies the general ledger account for posting of TDS payable amount.
To set up TDS rounding precision
Rounding precision for each and every component can be defined in system.
Choose the
icon, enter Tax Type -> Select TDS -> Tax Component, and then choose the related link.Define the relevant rounding precision against each tax components.
To set up TDS in vendor master
TDS Section and concessional codes need to be defined for each vendor that is liable to TDS. Multiple TDS sections can be attached to one vendor.
To define the TDS Sections in the Vendor Card
Choose the
icon, enter Vendors -> Navigate -> Allowed Sections and then choose the related link.Assessee Code needs to be filled on the vendor master.
PAN needs to be filled on vendor master, in case of no PAN is provided, higher rate of TDS will be deducted.
Fill in the fields as described in the following table.
Field Description TDS Section Select the valid section from lookup depending on the kind of services provided by the vendor. TDS Section Description Enter the description of the selected section. Default Section Mark true if the section needs to be defined as default section. Threshold Overlook Place a check mark in this field to overlook the TDS Threshold amount defined in 'Tax Rates' Surcharge Overlook Place a check mark in this field to overlook the Surcharge Threshold amount defined in 'Tax Rates' Non Resident Payment Identify if the TDS Section deals with non-resident. This identification will help the system to generate eTDS for Non-Residents. Nature of Remittance Select the Nature of Remittance. Act Applicable Select applicable act for generating in eTDS returns.
To define the concessional code in vendor card
Choose the
icon, enter Vendors -> Navigate -> TDS Concessional Codes and then choose the related link.Fill in the fields as described in the following table.
Field Description Section Select the valid section from lookup depending on the kind of services provided by vendor. Concessional Code Select the valid concessional code from lookup depending on the kind of services provided by vendor. Certificate No. Certificate number provided by the vendor can be defined to justify the lower tax deduction.
To set up TDS in location master
T.A.N needs to be defined on locations from where the company files its returns.
To set up TDS in company information
Following information needs to be defined in company information.
Field Description T.A.N No. Specifies the TAN of the legal entity. P.A.N No. Specifies the PAN of the legal entity. Deductor Category Specifies the deductor category of the legal entity. PAO Code Specifies the PAO code. PAO Registration No. Specifies PAO registration number. DDO Code Specifies DDO code. DDO Registration No. Specifies the DDO registration number. Ministry Type Specifies the Ministry type. Ministry Code Specifies the Ministry code.
To set up TDS in state code
State Code for eTDS/TCS needs to be defined on States master.