Creating TDS Tax Rate Rules

The India Localization SuiteTax Engine uses the Tax Deduction at Source (TDS) tax rate rules to calculate TDS on vendor bills. You can create TDS tax rate rules only with the Administrator or India Tax Manager role.

The SuiteApp selects which TDS tax rule to use for items in a vendor bill based on:

• Vendor type

• Section code assigned to an item

• Transaction date

You can also create tax rate rules for these tax types:

• Tax Deduction at Source

• Education Cess

• Secondary Education Cess

• Surcharge

• Vendor Exemption

Tax Deduction at Source

The Tax Deduction at Source (TDS) tax rate rule is used to calculate basic TDS on transactions. All TDS tax rules use the default TDS tax types and codes included with the India Localization SuiteTax Engine SuiteApp.

Each TDS tax rate rule is a unique combination of section code, vendor type, effective from date, and valid until date. If there are transactions for a TDS rule, you can’t edit any fields except the Valid Until field.

When you create a TDS tax rate rule, consider the following:

• Select a unique date range for each section code’s tax rate rules.

• Create tax rate rules for every vendor type.

• Create tax rate rules for resident vendors who don’t have a Permanent Account Number (PAN).

To create a TDS tax rate rule:

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

2. Click the Tax Deduction at Source subtab.

3. Click New Tax Deduction at Source.

4. Enter a unique name for the TDS tax rule.

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

6. In the Vendor Type field, select the vendor type for this rule.

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

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

9. Enter the tax rate for this rule.

10. In the Threshold Basis column, set the threshold level only if the section code has a threshold basis:

    1. Year – TDS is calculated when the total bill amount reaches or exceeds the yearly threshold. Until then, the SuiteApp uses the document threshold amount to calculate TDS.

       1. Threshold Amount– Enter the yearly threshold amount.

       2. Retrospective – If you check the box, the rule uses retrospective tax calculation. If you clear the box, it uses non-retrospective tax calculation. By default, the box is checked. You can’t use non-retrospective calculation if both year and document thresholds apply to the rule.

    2. Document– TDS is calculated when a bill amount is equal to or greater than the document threshold.

       By default, retrospective calculation is set when you use a document threshold basis.

       1. Threshold Amount – Enter the document threshold amount.

11. Click Save.

TDS Calculation Based on Tax Rule

TDS is calculated using the tax rule that applies to the bill. You can set up tax rules in the following ways:

• Tax rule without threshold basis– If there’s no threshold, TDS is calculated using the section code, vendor type, effective period, and tax rate.

• Tax rule with year threshold basis– If a year threshold is set, TDS is calculated using the section code, vendor type, effective period, tax rate, and threshold basis.

  When the total bill amount is equal to or greater than the year threshold, TDS is calculated on the bill.

  • If TDS calculation is retrospective, TDS is applied to the whole accumulated bill amount after it exceeds the year threshold.

  • If TDS calculation is non-retrospective, TDS is applied only to the amount above the year threshold.

• Tax rule with document threshold basis – If a document threshold is set, TDS is calculated using the section code, vendor type, effective period, tax rate, and threshold basis.

  When a bill amount is equal to or greater than the document threshold, TDS is calculated on that bill and all following bills. After the document threshold is reached, the SuiteApp ignores the threshold for subsequent bills associated with the rule.

• By default, tax calculation is retrospective when you use a document threshold.

• Tax rule with both document and year thresholds – If both thresholds are set, TDS is calculated using the section code, vendor type, effective period, tax rate, and threshold basis.

  If a vendor bill uses a rule with both thresholds, TDS is calculated based on whichever threshold is triggered. TDS calculation depends on the following scenarios:

  • If the bill amount reaches the document threshold first, TDS is calculated on that bill using the document threshold. The SuiteApp keeps using the document threshold for subsequent bills until the year threshold is reached. After a bill reaches the year threshold, TDS is calculated using the year threshold for that bill and all following bills.

  • If both thresholds are reached on a bill, TDS is calculated using the year threshold.

Education Cess

The Education Cess tax rule calculates the education cess tax the government charges to support education in India.

Select a unique date range for each section code’s Education Cess tax rules. These rules use the default Education Cess tax types and codes from the India Localization SuiteTax Engine SuiteApp.

To create an Education Cess tax rate rule:

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

2. Click the Education Cess subtab.

3. Click New Education Cess.

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

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

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

7. Check the Non-Resident Indian box if this rule is for non-resident payments.

8. Click Save.

Secondary Education Cess

The Secondary Education Cess tax rule calculates the education cess tax the government charges to support higher education in India.

Select a unique date range for each section code’s Secondary Education Cess tax rules. These rules use the default Secondary Education Cess tax types and codes from the India Localization SuiteTax Engine SuiteApp.

To enter a Secondary Education Cess tax rate rule:

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

2. Click the Secondary Education Cess subtab.

3. Click New Secondary Education Cess.

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

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

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

7. Check the Non-Resident Indian box if this rule is for non-resident payments.

8. Click Save.

Surcharge

The Surcharge tax rule calculates an extra charge or tax. All Surcharge tax rules use the default Surcharge tax type and codes from the India Localization SuiteTax Engine SuiteApp.

When you create a Surcharge tax rule, consider the following:

• Create tax rate rules if different periods or amount ranges have different tax rates.

• Create tax rate rules to calculate retrospective surcharge during the year.

To create a Surcharge tax rate rule:

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

2. Click the Surcharge subtab.

3. Click New Surcharge.

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

5. In the From Amount and To Amount fields, enter the amount range for this rule.

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

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

8. Check the Non-Resident Indian box if this rule is for non-resident payments.

9. Click Save.

Vendor Exemption

The Vendor Exemption tax rate rule calculates tax exemption for a vendor based on their Certificate Number. All Vendor Exemption tax rules use the default Vendor Exemption tax type and codes from the India Localization SuiteTax Engine SuiteApp.

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. Check the Retrospective box to calculate tax retrospectively.

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

      5. 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.

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

General Notices