(IND) Understanding TDS and WCT

This chapter provides overviews of:

TDS.
WCT.
Process flow for TDS and WCT.
Software solution for TDS and WCT.
Setup requirements for TDS and WCT.

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.

Overview of WCT

Works contract tax (WCT) is a tax imposed on a contract for work such as assembling, construction, building, altering, manufacturing, processing, fabricating, installation, improvement, repair, or commissioning of any movable or immovable property.

WCT is based on the contracts for labor, work, or service and not for the sale of goods, although goods are used to fulfill the contract. For example, when a contractor constructs a building, the buyer pays for the cost of the building which includes the building material, labor, and other services. No contract exists for the supply of the building material. The WCT tax applies only to the building and not for the materials used for construction. WCT certificate is the Certificate of Tax (R75I119) which you submit to the dealer or contractor.

Note. A transaction is considered a works contract only if the finished product is supplied to a customer and is not sold in the market to any other person.

Process Flow for TDS and WCT

This process flow shows the steps to charge and remit TDS and WCT:

Software Solution for TDS and WCT

To meet the TDS and WCT requirements specified by the tax authorities, the JD Edwards EnterpriseOne programs enable you to:

Control the ceiling limit for both TDS and WCT by invoice or by yearly limit according to the statutory requirement.
Calculate the TDS at concession rates for each supplier.
Track deletions, reversals, and voids in localized tables for both TDS and WCT.
Update challan information, such as challan number and BSR code, to include in Form 16A.
Update the TDS and WCT certificates.
Update the quarterly returns electronically (eTDS) for Form 26Q, as well as the annual returns.

Setup Requirements for TDS and WCT

This table lists the TDS and WCT setup requirements for India:

Setup Requirement	Cross-Reference
Assign tax types for TDS and WCT to suppliers.	See Assigning TDS and WCT Tax Types to Suppliers.
Enter up tax rates for TDS and WCT.	See Entering TDS and WCT Rates.
Enter concession rates for TDS and WCT.	See Entering TDS and WCT Concessional Rates for Suppliers.