Set up Tax Deducted at Source (TDS) as per the Income Tax Act, 1961 provisions

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 nonresidents.

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.

Set up TDS

TDS has two different types of setups

  • Automatic - These setups are done through Tax Engine.
  • Manual - These setups are done manually by the business users.

Preconfigured tax engine setup

  • Tax Types
  • Tax Entities
  • Components
  • Attributes
  • Rate Setup

For more information about Automatic Setup, see Tax Engine Information.

Setups to configure manually

Set up TDS rates

Rate of TDS is defined in combination of TDS section and assessee code.

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter TDS Rates, and then choose the related link.

  2. 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 is 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.
    Country Code Specifies the country 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.

Set up tax accounting period

Tax Accounting period and quarters need to be defined for TDS calculation.

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter Tax Acc. Period Setup, and then choose the related link.

  2. 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.

  3. Select the accounting period setup used by TDS, choose Tax Accounting Period, then choose Create Year. Fill in the following information to create the year.

    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.

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.

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter T.A.N. Nos., and then choose the related link.

  2. 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.
Tipp

It's mandatory to enter the T.A.N, on all TDS Transactions.

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.

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter Assessee Codes, and then choose the related link.

  2. 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.
Tipp

Type should be selected correctly while creating Assessee codes as it reflects in eTDS returns.

Set up TDS section

TDS Section represents the various sections under which tax deduction takes place as per the Income Tax Act 1961.

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter TDS Sections, and then choose the related link.

  2. 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.
    eTDS Specifies the section code to be used in the TDS return.
Tipp

User can create any number of subsections for a section using Add Sub Section function.

Set up concessional codes

Concessional codes are used for cases authorized for concessional rates exclusively defined by the government.

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter Concessional Codes, and then choose the related link.

  2. 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.

Set up TDS nature of remittances

Specifies the type of remittance.

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter TDS Nature of Remittances, and then choose the related link.

  2. 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.

Set up act applicable

Specifies the Act under which income from Nonresident Indians is taxed either the Income Tax Act (IT-Act), or as per the relevant rates prescribed in the relevant Double Tax Avoidance Agreement (DTAA).

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter Act Applicable, and then choose the related link.

  2. Fill in the fields as described in the following table.

    Field Description
    Code Enter a code for the applicable act or agreement.

Set up TDS posting setup

Specifies the general ledger account for each TDS Section defined in the system. System updates the TDS payable amount in the defined general ledger account.

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter TDS Posting Setup, and then choose the related link.

  2. 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.

Set up TDS rounding precision

Rounding precision for each and every component can be defined in system.

  1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter Tax Types, choose the related link, select TDS, and open its tax components.
  2. Define the relevant rounding precision against each tax components.

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

    1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter Vendors, choose the related link, open the vendor card, and then choose Allowed Sections.
    2. Assessee Code needs to be filled on the vendor master.
    3. Fill in the vendor's P.A.N. No. If PAN isn't available, complete the applicable P.A.N. Status and P.A.N. Reference No. The configured non-PAN rate applies, and posting checks the PAN details.

    4. 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 Displays the description of the selected section.
      Default Section Select to use this section by default. Only one section can be the default for a vendor.
      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 nonresident. This identification helps 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

    1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter Vendors, choose the related link, open the vendor card, and then choose TDS Concessional Codes.

    2. 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.

Set up TDS in location master

T.A.N needs to be defined on locations from where the company files its returns.

Set up TDS in company information

Define the following information on Company Information. PAO, DDO, and ministry details are required when the selected deductor category makes them mandatory.

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.

Set up TDS in state code

State Code for eTDS/TCS needs to be defined on States master.

TDS Transactions

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