Set up TDS by customer based on the Income Tax Act, 1961 provisions

Business Central has included Tax Deducted at Source (TDS) by Customer Feature to Indian Localization.

TDS is a withholding tax, where tax is deducted by the customer, at the time of making the payment or booking of the invoice, whichever is earlier. As per the Income Tax Act, 1961, tax needs to be deducted by the payer, when the payment is of a specific nature. If the TDS is deducted by the customer (deductor), then the user (deductee) has to calculate TDS on the invoice or revenue and keep a track of TDS deducted. The deductor has to provide the deductee a TDS certificate.

Set up TDS

TDS has two types of setup

  • 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.

The following setups are required to be configured 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

A legal entity can have more than one Tax Deduction Account Number (T.A.N), depending on the branch locations from which it files TDS returns. Record the account numbers 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.

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.

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.

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 posting setup

Specifies the general ledger account for each TDS Section defined in the system. System updates the TDS receivable 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 Specifies the relevant TDS section
    Effective Date Specifies the start date of the setup line
    TDS Receivable Account Specifies the general ledger account in which receivable account is posted.

Set up TDS on customer master

TDS Section and concessional codes need to be defined for each customer, who is liable to deduct TDS. Multiple TDS sections can be configured for one customer.

  • To define the TDS Sections on the Customer Card

    1. [!INCLUDE [open-search](../../includes/open-search.md)] Enter Customers, choose the related link, open the customer card, and then choose TDS Customer Allowed Sections.
    2. Assessee Code needs to be filled on the customer master.
    3. Fill in the customer's P.A.N. No. If PAN isn't available, complete the applicable P.A.N. Status and P.A.N. Reference No. Posting checks these details.

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

      Field Description
      TDS Section Select the valid section from lookup list depending on the kind of services provided by the customer.
      TDS Section Description Displays the description of the selected section.
      Threshold Overlook Selected automatically when a section is entered. This field isn't editable.
      Surcharge Overlook Selected automatically when a section is entered. This field isn't editable.

    Select TDS Certificate Receivable on the receipt journal line or sales document, not on the allowed-section line. For details, see TDS for customer.

  • To define the concessional code on customer card

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

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

      Field Description
      Section Select the valid section from lookup list depending on the kind of services provided by customer.
      Concessional Code Select the valid concessional code from lookup list depending on the kind of services provided by customer.
      Certificate No. Certificate number provided by the customer can be defined to justify the lower tax deduction.

Set up TDS on location master

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

Set up TDS on 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 No. 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 on state code

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

TDS Calculation for Customer

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