Basic Settings- Extended Withholding Tax

Task-1 Check Withholding Tax Countries

IMG Financial Accounting Financial Accounting Global Settings Withholding Tax Extended Withholding Tax Basic Settings Check Withholding Tax Countries

The withholding tax country is needed for printing the withholding tax form. Since the list of country IDs prescribed by law is different from the list in the system, you have to define the withholding tax countries again.

Task-2 Define Official Withholding Tax Codes

IMG Financial accounting Financial Accounting Global Settings Withholding Tax Extended Withholding Tax Basic Settings Define Official Withholding Tax Codes

If your national tax authorities use withholding tax keys to identify the different withholding tax types, you can define these official names for your tax   codes here.

192     ⇒   TDS on Salaries

194C   ⇒   TDS on Contractors

193        TDS on Interest on Securities

194I       TDS on Rent

194J      TDS on Professional Services

 

Task-3 Define Reasons for Exemption

IMG Financial accounting Financial Accounting Global Settings Withholding Tax Extended Withholding Tax Basic Settings 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.

Task-4 Check Recipient Types

IMG Financial accounting Financial Accounting Global Settings Withholding Tax Extended Withholding Tax Basic Settings Check Recipient Types

The type of recipient categorizes the vendor, which is necessary for printing the withholding tax form.

Task-5 Define Business Places

IMG Financial accounting Financial Accounting Global Settings Withholding Tax Extended Withholding Tax Basic Settings India Define Business Places

Create a business place for each tax deduction account number (TAN) that your company has. In the address data (which is printed on the vendor withholding tax certificates) maintain the tax office’s address

TDS Overview and Process

Overview of TDS

Tax deducted at source (TDS) is a tax that is deducted from income that a company in India pays to a recipient or supplier if the income amount exceeds a specific statutory limit in a financial year.

The types of income that are subject to TDS include:

  • Salary.
  • Interest and dividends.
  • Winnings from the lottery.
  • Insurance commission.
  • Rent.
  • Fees from professional and technical services.
  • Payments to contractors and subcontractors.

The withholding amounts for TDS can be deducted from an invoice submitted by a supplier or from the payment that is issued to the recipient or supplier. Examples of recipients and suppliers include contractors, providers of professional services, employees, and real estate landlords. Companies submit a TDS certificate to each supplier on a monthly or yearly basis. The certificate includes the payments, as well as information about the company and supplier. Companies must also submit an annual return to the government for each recipient or supplier for the financial year. TDS certificate can be either Form 16 (R75I10A) or Form 26Q-P2P-IND (R75I122EQ). Form 16 is the TDS certificate which an individual submits and Form 26Q is the TDS certificate which a company submits to the tax authorities.

TDS must also be deducted from payments issued to third parties by both corporate and noncorporate entities. The entity must deposit the amount owed for withholding at any of the designated branches of banks that are authorized to collect taxes on behalf of the government of India. The entity must also submit the TDS returns, which contain details about the payments and the challan for the tax deposited to the Income Tax Department (ITD).

For electronic TDS, companies must generate the Form 26Q for each financial quarter. This is a statutory requirement for the ITD.

Process of TDS :

Image

Or

Image

 

TDS/Withholding Tax Rates:

2013-03-08_105418

Withholding Tax Configuration PDF file

The Withholding Tax configuration enables the system to calculate and report TDS in India. The standard functionality is mainly used in withholding of tax from vendor invoices and depositing the same with the tax authorities.
The basic withholding tax settings for India (Country India Version) will include the following sub processes which are commonly used within the main process.

  • Defining withholding tax keys
  • Defining branch offices (Section codes)
  • Defining withholding tax type invoice & payment posting
  • Defining withholding tax type for ECESS at Invoice posting
  • Maintaining surcharges
  • Defining withholding tax codes
  • Defining GL accounts to post the withholding tax
  • Maintenance of number ranges for tax certificates and Challan

please click on the bellow mentioned Link

Withholding Tax Configuration

Configure Extended Withholding Tax

SAP system provides two procedures for processing withholding tax; the “Standard” and the “Extended” withholding tax. We’ll walk you through on the basic configuration steps of the latter procedure.

1. First, Check Withholding Tax Countries:

Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax → Extended Withholding Tax → Basic Settings → Check Withholding Tax Countries.

The “Change View Country Key for Withholding Tax: Overview” screen appears. To create new entry, you may copy an existing country key by selecting the Copy button or you may create from scratch by selecting New Entries button.

Fill up the following fields:

  • Country Key (Cty) – e.g. PH
  • Withholding Country Key (WCty) – e.g. PH
  • Description – e.g. Withholding Tax – Philippines

2. Second, Define Withholding Tax Keys. These are codes use to identify the different withholding tax types of each country.

Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax → Extended Withholding Tax → Basic Settings → Define Withholding Tax Keys.

A pop-up window “Determine Work Area: Entry” appears. Enter your country code, e.g. ‘PH’. Then select Enter button or press Enter on your keyboard.

The “Change View Official Withholding Tax Key – Descriptions: Overview” screen appears. To create new entries you may copy an existing tax key by selecting Copy button or you may create from scratch by selecting New Entries button.

Fill up the following fields:

  • Official Withholding Tax Key (Off. Key) – e.g. ‘C010′.
  • Text 40 (Name) – Professional talent fee paid to juridical person <=720,000.

3. Third, Define Withholding Tax Type. Note that with “Extended Withholding Tax Procedure”, withholding tax can be computed by the system during invoice processing or during posting of payments. Furthermore, the withholding tax on partial payments can also be computed or determined by the system automatically.

Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax → Extended Withholding Tax → Calculation → Withholding Tax Type → Define Withholding Tax for Invoice Posting (or for Payment Posting).

A pop-up window “Determine Work Area: Entry” appears. Enter your country code, e.g. ‘PH’. Then select Enter button or press Enter on your keyboard.

The “Change View Define Withholding tax type: Posting at time of invoice” screen appears. On the said screen, you may create through copy an existing tax type or you may create from scratch. Select the Copy button or New Entries button.

Fill up the Withholding Tax Type and Description fields. All other fields are already standard and more or less fit to your withholding tax requirements in your country.

4. Fourth, Define Withholding Tax Code. The tax code you create in this step should be assigned to the withholding tax type and withholding tax key created from the preceding steps. Furthermore, you enter also the tax rate and the base amount of computation.

Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax → Extended Withholding Tax → Calculation → Withholding Tax Code → Define Withholding Tax Code

A pop-up window “Determine Work Area: Entry” appears. Enter your country code, e.g. ‘PH’. Then select Enter button or press Enter on your keyboard.

The “Change View Withholding tax code: Details” screen appears. You may copy an existing tax code or you may create from scratch.

Fill up the following fields:

  • Withholding tax type – assign a withholding tax type you’ve created in step 3.
  • Withholding tax code – create your withholding tax code.
  • Description – Enter description of your withholding tax code.
  • Official Withholding tax key – assign a withholding tax key you’ve created in step 2.
  • Percentage subject to tax (Base amount) – normally, 100% of the base amount is subject to tax.
  • Posting indicator – normally select ’1′ which means, there is one line item entry for the withholding tax and the amount is deducted fromt the line item of customer, vendor, or cash account.
  • Withholding tax rate – enter the tax rate of the tax code. This will use by the system to compute the amount of tax during processing.

5. Fifth, Assign Withholding Tax Types to Company Codes. Here, you assign the withholding tax types created in step 3 to your Company Code.

Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax → Extended Withholding Tax → Company Code → Assign Withholding tax type to Company Code.

The “Change View Withholding tax information for company code per w/tax type” screen appears. You may copy an existing company code assignment or you may assign from scratch.

6. Sixth, Activate Extended Withholding Tax for your Company Code. Remember, the activation of this tax procedure is on the company code level. You can’t use this tax procedure to your company code, unless activated.

Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax → Extended Withholding Tax → Company Code → Activate Extended Withholding Tax.

The “Change View Enhanced withholding tax functions active: Overview” screen appears. To activate, tick the check box “Ext. w/tax” of your company code.

7. Finally, Define G/L Accounts for Withholding Tax. In this step, you assign the G/L account for Withholding tax posting.

Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax → Extended Withholding Tax → Posting → Accounts for Withholding Tax → Define Accounts for Withholding Tax to be Paid Over.

A pop-up window “Enter Chart of Accounts” appears. Enter the Chart of Accounts code then select Enter button or press Enter on your keyboard.

The “Maintain FI Configuration: Automatic Posting – Accounts” screen appears. Select the G/L account you want to assign for withholding tax postings.

Note, for every step above don’t forget to save your work. Select Save button or Ctrl+S after each step.