EXTENDED WITHHOLDING TAX (TDS)

Withholding tax is applicable in few countries. Some of the countries having

withholding tax are United Kingdom, Slovakia, Turkey, Argentina, Brazil, Chile,
Colombia, Mexico, India, Philippines, Thailand and South Korea. SAP has given an
excellent solution to map the withholding tax scenario.

What is Withholding Tax?

Withholding tax is an Income tax which is deducted at the source of the

revenue. The party is subject to tax does not remit the withholding tax to the tax
authorities himself.

In any business transaction there are 2 parties involved. One is Customer and
another is Vendor. A Customer is authorized to deduct withholding tax for service
rendered by the Vendor. When the Vendor raises the invoice on the Customer, the
Customer deducts the withholding tax as per the rates specified by the tax
authorities and pays the balance money to the Vendor.

Tax deducted by the Customer is remitted to the tax authorities on specified due
dates. The Customer gives a Withholding tax certificate to the Vendor for the
withholding tax deducted.

The Vendor can claim this withholding tax (as advance income tax paid) in his
annual returns to Income tax authorities.

When the Vendor submits an Invoice, the Customer is now required to deduct tax on
the Invoice amount
If we are making down payment, deduct TDS at this level and once you receive
Invoice, calculate TDS for amount at invoice level only.
To calculate pay and report the withholding tax, the SAP system provides two
functions:-

Classic Withholding tax

Extended Withholding tax

Extended Withholding tax includes all the functions of classic withholding

tax; SAP therefore recommends the use of extended withholding tax.

Here we are configuring Payment to Professional and Technical Services U/s 194J. of
Income Tax Act. This Tax Structure will change from year to year.
 Tax Structure: Upto Rs. 30000 no TDS. (Base Amount)
Above Rs. 30000/- TDS at the rate of 10.3% on gross amount
Surcharge is 1% on TDS

I. Basic Setting:
a. Check Withholding Tax Countries
b. Define Withholding Tax Keys
c. Define Reasons for Exemption
d. Check Recipient Types (after define W/tax code)
e. Define Business Places/Define Section Codes

II. Calculation
a. Withholding Tax Type
i. Define Withholding Tax Type for Invoice Posting
ii. Define Withholding Tax Type for Payment Posting
iii. Define Exchange Rate Type for Withholding Tax Type
iv. Define Rounding Rule for Withholding Tax Type
b. Withholding Tax Code:
i. Define Withholding Tax Codes
III. Company Code
a. Assign Withholding Tax Types to Company Codes
b. Activate Extended Withholding Tax
IV. Posting
a. Accounts for Withholding Tax
i. Define GL A/C for Tax Codes: FS00
ii. Assign GL to Withholding tax code for Auto. Payment. OBWW
1 Basic Setting:
1.1 Check Withholding tax countries.

Path: SPRO>IMG>Financial Accounting> Financial Accounting Global

Settings> Withholding Tax> Extended Withholding Tax >Basic Settings> Check
Withholding Tax Countries

Click on New Entries

(In this withholding country column, you can define any name, but you should
remember as you have to assign to Vendor Masters)

Country Withholding country Description

IN IBM Withholding tax for India
Save
 1.2 Define official Withholding Tax codes:

Path: IMG Financial Accounting  Financial Accounting Global Settings

Withholding Tax Extended Withholding Tax  Basic Settings  Define Official
Withholding Tax Codes

If the national tax authorities use official withholding tax keys to identify the
different withholding tax types, you can define these official names for your tax
codes here. Here we configure the various tax keys which are applicable in different
scenarios.

For example:-

Withholding tax code on Contractors,

Withholding tax code on Commission and brokerage
Withholding tax code on Professional & Technical service
Withholding tax is also called TDS (Tax deducted at source) in some countries.

off. National tax

Name
Key code
192 Salary Payment 217
194A Interest income other than securities 217
Payment to contractors/sub-
217
194C contractors
194D Insurance Commission 217
194H Commission/Brokerage 217
Rent-
217
194I Plant,Machinery,Furniture,Property
194J Prof/Technical services 217
195 Payment to foreign nationals 218
Transfer immovable prop.excl agri
217
94IA land
Compulsory acquisition of
217
94LA immovable prop
JICG IN:Central GST
JIIG IN:Integrated GST
JISG IN:State GST
ZLBS Labour Cess 217
ZSTR RCM Service Tax 217
ZWCT Works Contract Tax 217
 1.3 Define Reasons for Exemption:
Here we define reasons for exemption from withholding tax. This indicator
can be entered in the vendor master record or in the company code withholding tax
master record information.

1.4 Check Recipient Types:

This is required to categorize the vendor.
For example:-
If the vendor is a company or,
Other than a company.

This configuration can be done after define withholding tax type

 1.5 Define Business Places/Define Section Codes:

Path: IMG Financial Accounting  Financial Accounting Global Settings

Withholding Tax Extended Withholding Tax  Basic Settings  India
Define Business Places

Business places are the location where tax is deducted. A company has various
offices at Head Office, Regional offices etc. Tax can be deducted at any of these
places.

Withholding tax tracking is thus done based on business places. The use of
business places is mandatory. Create a business place for each tax deduction
account number (TAN) that your company has.

Click on new entry

Enter company code then sanction code and save it
After then new pop window will come up fill the req. details and press enter
then save it.
2 Calculation:

2.1 Withholding tax type:

The withholding tax type controls the essential calculation options for
extended withholding tax.
While the withholding tax code only controls the percentage rate of the
withholding tax.
You must enter the withholding tax type in the customer/vendor
withholding tax master data and in the company code master data.

2.1.1 Define Withholding tax for Invoice Posting:

Here you define the withholding tax type for the posting at the time of
entering an invoice. This withholding tax type does not have any effect on the
payment. All calculations for extended withholding tax are made in the first
local currency of the respective company code.

Path: IMG>Financial Accounting> Financial Accounting Global Settings>

Withholding Tax > Extended Withholding Tax> Calculation> Withholding Tax
Type> Define Withholding tax for Invoice Posting
I defined tax type
RI 194I-INV-RENT PMT
LA Labour Cess Andhra Pradesh
LD Labour Cess New Delhi
LB Labour Cess Karnataka
LJ Labour Cess Uttar Pradesh
JI 194J-INV-PROFESSIONAL FEES PMT
CI 194C-INV-CONTRACTORS/SUB-CONTRACTORS PMT 15%
 Country IN Enter
Click on New Entries button

Withholding tax type: CI

Description 194C-INV-CONTRACTORS/SUB-CONTRACTORS PMT
Calculation on: Net Amount (select as per client req.)
Rounding rule: W/tax comn. Round. (select as per client req.)
Post W/tax amount always check it
Accumulation type: No Accumulation
Control: W/tax base amt, mannual w/t amnt, no cert. numbering
Define Min./Max. amounts: W/tax code level (for Base amt and w/tax amt) Save

Create all withholding tax as per client requirement.

2.1.2 Define Withholding tax for Payment Posting

Here we define the withholding tax type for posting at the time of payment. We
also have to enter the withholding tax information when entering the document for this
withholding tax type.

Path: IMG>Financial Accounting> Financial Accounting Global Settings> Withholding

Tax > Extended Withholding Tax> Calculation >Withholding Tax Type > Define
Withholding tax for Payment Posting

Country IN Enter
Click on New Entries button
awithholding tax type AT
Description 10.3% TDS on P&T Services- payment posting
Calculation on: Net Amount (select as per client req.)
Rounding rule: W/tax comn. Round. (select as per client req.)
Cash discount: C/disc pre w/tx
Post W/tax amount always check it
Accumulation type: No Accumulation
Control: W/tax base amt// mannual w/t amnt// no cert. numbering
Define Min./Max. amounts: W/tax code level (for Base amt and w/tax amt)
CP- Contractor
AP- Interest

2.1.3 Define Exchange rate type for W/tax type:

Here we define the exchange rate type for individual withholding tax
types that is to be used for calculating withholding tax.
When calculating withholding tax for payments, the exchange rate of the
payment is usually used, if the withholding tax amount has to be translated
 from a foreign currency into the local currency. Some countries have legal
requirements that specify which exchange rate is to be used.
Only required for foreign posting related tax type:

2.1.4 Define Rounding Rule for withholding tax type:

Here we define rounding rules for the individual withholding tax types.
 In place of UNIT you have to maintain
100 = rounding nearest rupee (Recommended)
10 = rounding second decimal
5 = rounding first decimal

2.2 Withholding Tax Code:

2.2.1 Define withholding tax codes

Path: IMG>Financial Accounting> Financial Accounting Global Settings>

Withholding Tax> Extended Withholding Tax> Calculation> Withholding Tax Codes>
Define Withholding tax codes

(This Tax Codes is to identify Tax Types While defining Tax Rates, instead of point
(.), you have to define Comma (,) only) for ex: Rate is 2.2, define 2,2) (Tax Rate
T=10.3 and S=0.103)

Country IN Enter

Click on New Entries button

a) withholding tax type CI
Code CC
Description 194C-INV-Con/Sub Con-Ind/HUF@1%
Percentage subject to tax 100
Posting Indicator 1
Withholding tax rate 1

Select Next Entries button

b) withholding tax type IS

Code SI
Description 1%Surcharge on TDS - invoice posting
Percentage subject to tax 100
Posting Indicator 1
Withholding tax rate 0.103 SAVE.

Select Next Entry button

d) withholding tax type AT
Code TA
Description 10.3% TDS on - payment posting
Percentage subject to tax 100
Posting Indicator 1
Withholding tax rate 10.3

Select Next Entry button

e) withholding tax type AS
Code SA
Description 1%Surcharge on TDS on payment posting
Percentage subject to tax 100
Posting Indicator 1
Withholding tax rate 0.103 SAVE.

LA LA Labour Cess Andhra Pradesh@1%

LB LB Labour Cess Karnataka@1%
LD LD Labour Cess Chhattisgarh@1%
LJ LJ Labour Cess Uttar Pradesh @ 1%
RI RI 194I-INV-RENT PMT @10%
JI JI 194J-INV-PROFESSIONAL FEES PMT @10%

3. Company Code

3.1 Assign withholding tax type to the company codes

Here we assign the withholding tax types to the company code.

Path : IMG>Financial Accounting >Financial Accounting Global Settings>
Withholding Tax> Extended Withholding Tax > Company Code > Assign withholding tax
type to the company codes

Select New Entries button Company code 2500

Withholding tax type IT
withholding tax obligation from 01.04.2017
Obligated to withholding tax 31.03.9999
Customer data: Subject to w/tax// shelf withholding agent (select both)
SAVE.

Save
3.2 Activate Extended Withholding tax

Click on Position
Type Company Code 2500
Select Extended Withholding tax check box and Save
Ignore the message and Enter to save the data

4. Posting:-

4.1 Creation of General Ledger A/cs TC FS00

TDS Payable under current liabilities A/c No.100505

Surcharges payable under current liabilities A/c No.100506

( At the beginning stage there is a chart of G/L A/c list in that you can find the
procedure of creation General Ledgers with a/c nos. )

5. Assignment of A/c for Automatic Postings

Path : IMG>Financial Accounting> Financial Accounting Global Settings > Withholding
Tax> Extended Withholding Tax> Accounts for withholding tax> Define Accounts for
withholding tax to be paid over
TC:/NOBWW

Enter Chart of Accounts 2500 Enter

Select Withholding tax type check box

Select Withholding tax codes check box Save

Withholding tax type Withholding tax code Account No.

IT TI 100505
IS SI 100506
AT TA 100505
AS SA 100506
Save

Note: You need to specify the excise year settings under Logistics General settings -
Taxes on Goods Movements - India - Basic settings - Maintain Company Code
settings

6. Assign withholding tax types & codes to Vendor Masters (TDS Activation)
TC:/NXK02

Vendor A/c No. (Auditor Company)

Select withholding check box Enter
Withholding tax country IBM

Withholding tax type Withholding tax code Liable

IT TI Select
IS SI Select
 AT TA Select
AS SA Select
Save
( Ignore the messages and hit Enter till you get message “saved” )

Now, go for Invoice posting F-43. After Debit entry, you will get 4 rows or 2 rows as the
case may be:

1. If you want to calculate TDS at payment level, then delete Invoice Tax Code and type
taxable amount next to Pmt tax code. Or if you want to calculate TDS at Invoice level,
type taxable amount in next to Invoice tax codes and delete Payment level tax codes.
2. Go to F-53 for passing payment entry with TDS deduction.

Now pass one Journal entry in /NF-02: (Check credit balance of TDS and SC A/c through
/NFS10N and note down to pass journal entry..
TDS Payable A/c Dr. (100505)
SC Payable A/c Dr. (100506)
To Bank A/c (200101)