Creating Vendor Exemption Rules

You can create two types of vendor exemption rules: Amount-based and Period Ranges. Each rule applies to a specific vendor, section code, schedule type, and effective period.

Before you create a vendor exemption rule, keep these points in mind:

• If you create a vendor exemption rule, there must be a matching TDS rule with the same section code.

• For a combination of section code and vendor, you can only create one vendor exemption rule per fiscal year.

• You can create a vendor exemption rule for a full year or for a period shorter than a year.

• Vendor exemptions for different periods or vendors can share the same TDS rule if the section code is the same.

• A vendor exemption rule is only valid for one fiscal year and can't be used across multiple years.

• The validity of a Period Ranges rule must be one year or less.

• You can't create a vendor exemption rule if its duration falls under multiple TDS rules.

• You can't create a vendor exemption rule if there are existing bills related to that rule in a closed accounting period.

• You can't create a vendor exemption rule across two different fiscal years.

VE Rule Settings and Options

When creating a vendor exemption rule, you must set the following:

• Schedule Types – This option lets you select the type of vendor exemption rule you want to create — Amount-based or Period Ranges.

  • Amount-based rule – This type of vendor exemption rule exempts a vendor from Tax Deducted at Source (TDS) up to a specified amount. For vendor bills up to the threshold, the tax rate in the vendor exemption rule applies. If vendor bills exceed the threshold, the TDS rule decides the tax rate, and tax is deducted based on the rule's setup.

  • Period Ranges – This type of vendor exemption rule exempts a vendor from Tax Deducted at Source (TDS) for a specific period or range of dates. For vendor bills within the date range, the tax rate in the vendor exemption rule applies. If payments exceed that period, the TDS rule decides the tax rate, and tax is deducted as per the rule's setup.

• Effective From and Valid Until Dates – This option lets you select a date range for the rule. When you choose a date range, you also need to select a tax rate for vendor bills generated during that time.

  Additionally, note the following requirements:

  • Don't select multiple date ranges to avoid TDS calculation errors.

  • The date range must be within one fiscal year. To avoid issues, you should create a new vendor exemption rule for the next year instead of changing an existing rule mid-year.

  • You can set up a vendor exemption rule for a full year or for less than a year.

• From Amount and To Amount – This option lets you select a threshold amount for the rule. When you set the threshold, you also need to choose a tax rate for payments within that range.

• Section Code – This option lets you select the section code for the vendor exemption rule. There must be a matching TDS rule with the same section code for the exemption to apply.

To create a Vendor Exemption tax rate rule:

1. Go to Setup > India Localization > TDS Tax Rate Rules.

2. Click the Vendor Exemption subtab.

3. Click New Vendor Exemption.

4. In the Vendor Name field, select the vendor for this rule.

5. In the Section Code field, select the section code for this rule.

6. In the Particulars field, select the reason for tax exemption for this vendor.

7. In the Certificate Number field, enter the TDS certificate number for the vendor.

8. In the Schedule Type field, select a schedule type for this rule.

   1. If you selected Amount Range, fill out the following fields:

      1. In the Effective From field, enter the start date for the tax rule.

      2. In the Valid Until field, enter the end date for the tax rule.

      3. On the Amount Rate Schedule sublist, in the From Amount and To Amount fields, enter the amount range for this rule.

      4. In the Rate field, enter the tax rate for this rule.

   2. If you selected Period Ranges, in the Period Rate Schedule sublist, fill out the following fields:

      1. In the Effective From field, enter the start date for the rule.

      2. In the Valid Until field, enter the end date for the rule.

      3. In the Rate field, enter the tax rate for this rule.

9. Click Save.

When you save a rule, a confirmation message appears if there are existing bills with TDS calculated under that rule. The message will ask you to confirm updating those bills to reflect the correct TDS. If the update succeeds, you'll get an email. If it fails, you'll receive an email with error details. Resolve the error, then go to Setup > India Localization > TDS Verify to try updating the bills again.

Warning:

During the update, do not create, edit, or delete any bills related to the selected combination of subsidiary, vendor, section code, and period. Wait until the current update is finished before starting another.

After you create TDS tax rate rules, assign TDS section codes to items and accounts. For more information, see Assigning TDS Section Codes to Items and Accounts.

Related Topics

• Tax Deduction at Source
• Setting Up TDS
• Mapping TDS Tax Types
• Applying TDS on Vendor Bills
• Viewing TDS Tax Details
• Creating TDS Challan Vouchers
• Creating Vendor Exemption Rules
• Calculating and Managing Vendor Exemption Rules
• Inactivating Vendor Exemption Rules

General Notices