Creating Tax Deduction at Source 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 using the Administrator or India Tax Manager role only. The SuiteApp determines the TDS tax rule to apply to items in a vendor bill based on the following information:

• Vendor type

• Section code assigned to an item

• Transaction date

The SuiteApp enables you to create tax rate rules for the following tax types.

• Tax Deduction at Source

• Education Cess

• Secondary Education Cess

• Surcharge

• Vendor Exemption

Tax Deduction at Source

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 tax codes included in the India Localization SuiteTax Engine SuiteApp for tax calculation.

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

When creating a TDS tax rate rule, consider the following:

• Select a unique date range to create tax rate rules for each section code.

• Create tax rate rules for each vendor type.

• Create tax rate rules for resident vendors who do not have 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 that applies to the rule.

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

7. In the Effective From field, enter the start date of the tax rule's validity.

8. In the Valid Until field, enter the end date of the tax rule's validity.

9. Enter the appropriate tax rate to apply to the rule.

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

    1. Year – TDS is calculated when the accumulated bill amount is equal to or greater than the year threshold amount. Until the accumulated bill amount is equal to or greater than the year threshold amount, the SuiteApp calculates TDS based on the document threshold amount.

       1. Threshold Amount – Enter the year threshold amount.

       2. Retrospective – If you check the box, retrospective tax calculation is set. If you clear the box, nonretrospective tax calculation is set. By default, the box is checked. However, you cannot set non-retrospective calculation for a tax rule if both year and document threshold bases apply to the rule.

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

       By default, retrospective calculation is set for a tax rule when setting up document threshold basis.

       1. Threshold Amount – Enter the document threshold amount.

11. Click Save.

TDS Calculation Based on Tax Rule

TDS is calculated based on the tax rule applicable to the bill. The following combinations are available to set up tax rules:

• Tax rule without threshold basis – When no threshold basis is set for a rule, TDS is calculated based on the section code, vendor type, effective period, and tax rate.

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

  When the accumulated bill amount is equal to or greater than the year threshold of a rule, TDS is calculated on a bill.

  • If TDS calculation is retrospective, TDS is calculated on the entire accumulated bill amount when it exceeds the year threshold amount.

  • If TDS calculation is nonretrospective, TDS is calculated on the difference amount of the accumulated bill amount and year threshold amount.

• Tax rule with document threshold basis – When document threshold is set for a rule, TDS is calculated based on 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 of a rule, TDS is calculated on the bill, and on the subsequent bills. After reaching the document threshold, the SuiteApp does not consider the threshold to calculate TDS on the subsequent bills associated with the rule.

• By default, the tax calculation is set to retrospective when the threshold basis is Document.

• Tax rule with both document and year threshold bases – When both year and document thresholds are set for a rule, TDS is calculated based on the section code, vendor type, effective period, tax rate, and threshold basis.

  If a vendor bill uses a rule for which both document and year thresholds are set, TDS is calculated based on the threshold, which is triggered. TDS calculation depends on the following scenarios:

  • If a bill amount reaches the document threshold first, TDS is calculated on the bill based on the document threshold. The SuiteApp calculates TDS on the subsequent bills based on document threshold until the year threshold is reached. After a bill reaches the year threshold, TDS is calculated on the bill and, the subsequent bills based on year threshold.

  • For a particular bill, if both document and year thresholds are reached, TDS is calculated based on the year threshold.

Education Cess

The Education Cess tax rule is used to calculate education cess tax imposed by the government for the development of education in India.

You must select a unique date range to create Education Cess tax rules for each section code. All Education Cess tax rules use the default Education Cess tax types and tax codes included in 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 a tax rate for this rule.

5. In the Effective From field, enter the start date of the tax rule's validity.

6. In the Valid Until field, enter the end date of the tax rule's validity.

7. Check the Non-Resident Indian box if this rule applies to non-resident payments.

8. Click Save.

Secondary Education Cess

The Secondary Education Cess tax rule is used to calculate education cess tax imposed by the government for the development of higher education in India.

You must select a unique date range to create Secondary Education Cess tax rules for each section code. All Secondary Education Cess tax rules use the default Secondary Education Cess tax types and tax codes included in 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 a tax rate for this rule.

5. In the Effective From field, enter the start date of the tax rule's validity.

6. In the Valid Until field, enter the end date of the tax rule's validity.

7. Check the Non-Resident Indian box if this rule applies to non-resident payments.

8. Click Save.

Surcharge

The Surcharge tax rule is used to calculate an additional charge or tax. All Surcharge tax rules use the default Surcharge tax type and tax codes included in the India Localization Tax SuiteTax Engine SuiteApp.

When creating a Surcharge tax rule, consider the following scenarios:

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

• Create tax rate rules that will 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 a tax rate for this rule.

5. In the From Amount and To Amount fields, enter the amount range to which the tax rule applies.

6. In the Effective From field, enter the start date of the tax rule's validity.

7. In the Valid Until field, enter the end date of the tax rule's validity.

8. Check the Non-Resident Indian box if this rule applies to non-resident payments.

9. Click Save.

Vendor Exemption

The Vendor Exemption tax rate rule is used to calculate the tax exemption for a vendor based on the Certificate Number.

All Vendor Exemption tax rules use the default Vendor Exemption tax type and tax codes included in 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 issued to the vendor.

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

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

      1. In the Effective From field, enter the start date of the tax rule's validity.

      2. In the Valid Until field, enter the end date of the tax rule's validity.

      3. Check the Retrospective box to use the rule 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 a tax rate for this rule.

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

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

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

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

9. Click Save.

After creating TDS tax rate rules, assign TDS section codes to items and accounts. For more information, see Assigning Tax Deduction at Source Section Codes to Items and Accounts.

Related Topics

• Tax Deduction at Source
• Setting Up Tax Deduction at Source
• Creating Tax Deduction at Source Tax Type Mapping
• Applying Tax Deduction at Source on Vendor Bills
• Viewing Tax Deduction at Source Tax Details
• Creating Tax Deduction at Source Challan Vouchers

General Notices