TDS with threshold
This article explains the requirement of threshold amount in TDS and the process of calculating TDS for such transactions.
TDS calculation considering threshold limits
The tax rate defines the threshold and per-contract value for each TDS section. The calculation considers transactions within the tax accounting period and the vendor's Threshold Overlook setting. If Threshold Overlook is selected on Allowed Sections, the threshold is ignored.
The following example assumes TDS section 194C, an aggregate threshold of INR 1,00,000, a single-transaction threshold of INR 30,000, and a rate of 2%. These are illustrative assumptions, not guidance on current tax law. Threshold Overlook and Calc. Over & Above Threshold are cleared in this example.
Three transactions of INR 29,000 and a fourth transaction of INR 20,000 take place in the financial year. On the fourth transaction, the cumulative amount is INR 1,07,000, which exceeds the aggregate threshold. TDS is calculated as follows:
| Particulars | Amount Credited or Paid | TDS Rates | TDS Amount | Threshold Limit |
|---|---|---|---|---|
| First Invoice | 29000 | 2% | Zero | Less than Single Transaction Threshold Limit 30,000 |
| Second Invoice | 29000 | 2% | Zero | Less than Single Transaction Threshold Limit 30,000 |
| Third Invoice | 29000 | 2% | Zero | Less than Single Transaction Threshold Limit 30,000 |
| Fourth Invoice | 20000 | 2% | 2,140 (2% of 1,07,000 that is, total of all invoices) | Exceeds TDS Threshold Limit 1,00,000 |
GL Entries for TDS where payment is less than threshold limits (first transaction where vendor has given the invoice for INR 29,000) are as following:
Particulars Amount Purchases Account 29000 Vendor Account -29000 GL Entries for TDS where payment is less than threshold limits (second transaction where vendor has given the invoice for INR 29,000) are as following:
Particulars Amount Purchases Account 29000 Vendor Account -29000 GL Entries for TDS where payment is less than threshold limits (third transaction where vendor has given the invoice for INR 29,000) are as following:
Particulars Amount Purchases Account 29000 Vendor Account -29000 G/L entries for the fourth invoice of INR 20,000, which crosses the aggregate threshold, are as follows:
Particulars Amount Purchases Account 20000 TDS Payable Account -2140 Vendor Account -17860