A withholding tax, also called a retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. Tax Deducted at Source (TDS) is a withholding tax which is a direct tax administered by the Central Board of Direct Taxes (CBDT) under Income Tax Department. Goods and Services Tax (GST), an indirect tax, is administered concurrently by the Federal and State Governments through Central Board of Indirect taxes (CBIC which was formerly known as Central Board of Excise and Customs - CBEC) and respective state commercial tax departments. GST being an indirect tax, does not impact TDS provisions and requirements. Provisions of the current Income tax for TDS and all procedural requirements including classification through sections, threshold computations, taxable events, tax accounting, tax settlement and tax reporting are not impacted with introduction of GST. The way in which TDS is configured has changed where you use the GST infrastructure to configure the TDS types of taxes through Regime to Rate flow.
This document provides details of the functional flow of Tax Deducted at Source (TDS) from GST infrastructure configuration perspective. Post GST, the TDS solution capability and functionality remain the same. The TDS setup and the way it is configured has changed.
Following are the required setups for Withholding Tax:
The TDS standard Invoice is generated against the supplier defined here. The liability arising from the Income Tax Deducted at Source, while making Supplier payments are accounted against an Income Tax Authority. Create a Supplier and assign the Site for this Authority. Additionally, in the Type field on the Classification tab, choose Tax Authority-IND. On doing this, when defining a Tax Deduction at Source Tax Type, the Supplier Name is listed in the Vendor field list of values on the Tax Definition window.
You define the Tax Authority using (N) India Local Payables > Oracle Payables > Suppliers > Entry.
Define a special accounting period as TDS financial Year in the standard AP Periods Definition window. This period start from 1-Apr and ends on 31-Mar of next year as the Year type. After defining the TDS period, assign it to the TDS regime as TDS financial Year.
You define the TDS financial year using, (N) India Local Payables > Oracle Payables > Setup > Calendar > Accounting > Periods. Specify the Calendar as, TDS_CALENDER, Period Type as Year, and start and end date must be a financial year (Apr- Mar).
Define the respective Tax Regime used. This Regime name entered is a user-configurable field and you can enter a value for the Regime Name.
Regime is used define rules applicable to all taxes assigned to it. You need to complete this setup step before you move ahead with other setups.
Setups made for a regime are applicable to all transactions created for the organizations assigned to it. Information defined here is generic unless you assign different properties at the organization level.
Navigate to the Define Regime window by using (N) Oracle Financials for India > Tax Configuration > Define Regime.
Enter or select the Regime Code and Regime Name for Tax Deducted At Source.
Choose Regime type as Withholding Tax. Regime Type of Transaction Tax will be used for Indirect Taxes (GST Taxes).
Choose Tax Calendar which was defined.
Choose the Tax Authority which was defined.
Define Rounding Rules.
Define the respective Tax Type.
Navigate to Define Tax Type window using (N) Oracle Financials for India > Tax Configuration > Define Tax Type.
Choose the Regime code which was defined.
In Details Tab Select the checkbox Withholding Tax applicable.
In the Accounting tab, select a Ledger and Operating Unit.
Specify the Liability Account and Rounding Account Details.
Define the rate of tax which is calculated on the transaction. As per requirement, if the tax is Recoverable or inclusive in nature.
Navigate to the Define Tax Rate window by using (N) Oracle Financials for India > Tax Configuration > Define Tax Rate.
Select the Operating Unit.
Choose the Regime which was defined earlier.
Choose tax type code which was defined earlier.
Enter the Rate Details.
Accounting information defaults from the Tax Type. You can modify the accounting information at the Tax rate level for Withholding.
Define Tax category that has to be used or defaulted while creating the transactions.
Navigate to the Define Tax Category window by using (N) Oracle Financials for India > Tax Configuration > Define Tax Category.
Select the Operating Unit.
Enter the Tax category Name.
Enter the Start Date.
Choose the Tax Rate that has been defined.
Specify the precedence.
Navigate to the Define Common Configuration window by using (N) Oracle Financials for India > Tax Configuration > Define Common Configuration.
Select the Operating Unit.
In the withholdings Tab:
Provide tax category that has to be defaulted when Registration number is not available.
Check the options, if the TDS invoice generated should be validated and approved accordingly.
Select one of the options:
Create Pre-Validated TDS Invoice and Credit Memo
If this option is selected, the system invokes Approval of TDS invoice concurrent program and validates created TDS invoices.
Create Pre-Approved TDS Invoice and Credit Memo
If this option is enabled, the system creates TDS invoices with approve status, NOT REQUIRED.
Provide the tan number and Pan number of the Organization in the first party Registration.
Navigate to the Define First Party Registration window by using (N) Oracle Financials for India > Party Registration > Define First Party Registration.
Choose Regime Type as Withholding Tax.
Select the Organization as the Operating Unit.
Select the operating unit's name.
Click New in the Registration tab.
Choose the Regime code.
Select Primary Registration Name from the list of values, ECC Number, PAN Number, TAN Number, TIN Number, GST Number.
Enter the value in Primary Registration Number.
Enter the Secondary Registration Name, PAN Number.
Enter the value in Secondary Registration Number.
Enter the Tax Authority and Tax Authority Site.
Define third party registration for the Suppliers for which the tax deducted at source has to be deducted. Third party registration has to be done for the null site first and then for the site level at the operating unit.
Navigate to Define Third Party Registration window using (N) Oracle Financials for India > Party Registrations > Define Third Party Registration.
Define Third Party Registration for Null Site. Do not select Operating Unit.
Select Party Type as Supplier.
Select the Party Name.
Click New.
In the Registration tab, select the Regime Code.
Enter the PAN number as Primary Registration Number.
Select the default Section Code that is defaulted at the transaction.
Vendor classification is added in the Reporting Codes tab. Choose Reporting Type Name as the Vendor Type and choose the appropriate value in the Reporting code.
Define Third Party Registration at the Site Level.
Select the Operating Unit.
Select the Party Type as Supplier.
Select the Party Name and Party Site.
Select New.
Select the Regime Code.
PAN Number value is defaulted from the Null site level.
Select the Section code to be default.
At the Reporting Codes tab, classify the Vendor Type.
Define the threshold setup for the section code, Regime type and the vendor Type combination. Select Exception setup if the vendor has a tax deducted at source certificate. If the Exception setup has been selected, then assign vendors tab is enabled to define the vendor name, certificate number, start date and end date. Define the Operating Unit and Tax Category Name that has to be defaulted for the applicable section code.
Navigate to the Define Tax Category window by using (N) Oracle Financials for India > Withholding Tax Setup > Define Withholding Thresholds.
Select the Regime, Vendor Type and Section code.
Click New.
Select Threshold Type, From and To Amount range, Start and End date.
In Taxes section, select the operating unit and the Tax Category that is to default for the threshold Limit.
TDS section code on the invoice is default based on the Defaulting rules setup at the third party registration. Tax category is defaulted based on the setup done for an operating unit and the section code at the threshold setup.
Follow these steps to apply TDS on manual invoices:
Create an Manual Invoice with Item Line.
Populate the account information for distributions.
Save Distributions.
Navigate to the TDS Tax Details window using, Invoice header > Click on Tools > TDS Tax details.
Check whether the TDS tax category and section code has been defaulted as per the setup done.
Check the Overridden option, if the tax category or the section has been overridden or manually applied.
Save the data.
Validate the Invoice.
Verify whether the concurrent programs has been triggered and completed Normally:
India TDS Processing (India - TDS Processing Concurrent)
Import TDS invoices - invoice validate (Payables Open Interface Import)
Approval of TDS Invoices (India - TDS Approval)
Requery the Invoice by Appending % to the Invoice number to verify the standard TDS Invoice against Tax authority and Credit memo against Supplier has been generated or not
Follow these steps for applying TDS on a prepayment invoice:
Create a Prepayment Invoice.
Save Invoice distributions.
Apply TDS taxes.
Navigate to TDS Tax Details window using Tools > TDS Tax Details.
Click on Override option when the tax has been applied manually.
Validate the Invoice Check whether the TDS invoice has been generated.
Make payment for the prepayment Invoice.
Query the invoice on which the prepayment has to be applied.
Check whether the same section code has been applied to the invoice as of that prepayment.
Apply Prepayment Invoice on to invoice
Revalidate the Invoice and verify whether the RTN Invoice has been generated.