FICO – AP – Withholding Tax -CIN (Part 1)

So the other day, we were going through withholding tax, accounts receivable, accounts payable, Financial accounting (new), withholding tax, extended withholding tax. What we have done, we have done the basic settings. In basic settings, check withholding tax countries. We had India and different withholding tax keys. We have defined only one withholding tax key, country India.

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Define business places, assign factory calendar, these things we have done. Now calculation. So here, what we are planning to do now see here withholding tax let me go through. Different types of withholding tax are there and those withholding tax, we need to define just like for each and every type of tax and every percentage, we need to define a tax type and tax code. See basic configurations as well. 

Here, we have withholding tax type 194C, contractors or Subcontractors, 119H, 194I, 194G like that. So withholding tax, this is called a type of tax. Withholding Tax type, we define. This keys etc, we define as withholding tax type and the percentage whatever we are going to define should be defined as withholding tax code. So we are going to define 2 things, One is code and the other  is type. Here, define withholding tax type for invoice Posting. Right. Define withholding tax type for invoice posting. Take this one. Right country India. Go to new entries. Withholding tax type. 

So withholding tax, what we do, We create withholding tax, say, what is our company code? DRLB. Withholding tax W1. So what we have defined in the earlier, section is for payment to professionals, I think. Isn’t it? 194. It’s a free payment to professionals. So this we have defined. Now I’m defining this is tax deducted source, TDS ON PAYMENTS PROFESSIONALS. Right? Here, let us know how much Percentage? 10%. Say, 10% TDS payment. This is 194J. Now okay. So here, 10% details on payment to professionals under section 194J. Now when we are going to calculate the tax, see here on 1 lakh, we are calculating. So that is called the gross amount, the legal charges whatever we receive on that, we are going to deduct TDS. So not the net amount, we call it as a gross amount. Select the gross amount. This is rounding rule. Withholding tax commercial round. Round withholding tax amount up. Round withholding tax amount. Here, okay. Withholding tax, commercial round. Means the next 1 rupee it will convert. 

Here, there is a checkbox. Post withholding tax amount, unless you check this box, system will not post this to the GL account. What is this fee? When we are going to calculate tax, we are supposed to post the same to the GL account. Is there any case where we calculate tax and we post we don’t post the same to GL account. Why should we should he keep this one? Yes. There is a requirement here. Not in India. Some other countries. If you want to check that, just keep here, say, F1. See the help. Right. If you set this indicator, the withholding tax amount is both calculated and posted. Use: in certain countries such as France, Belgium, there is no requirement for you to post withholding tax amount. I don’t understand. Without posting to GL account, how they are going to capture it? That is a puzzle to me. Yeah. They still have a doubt. Accumulation type, we are not going to accumulate every month. We are going to whatever the period that has been collected, that will be posted. Control, withholding tax base manual, manual withholding tax amount, no certificate numbering. So keep these things. Withholding tax, we should be in a position to manually change at the time of posting. This, I will show you when we are going to post the entry. But I’ll get back to you on this once we post an entry.

Here, define minimum/ maximum amounts. Subsequently, we are going to calculate the tax. There are certain conditions out there where withholding tax has to be minimum should be like this. Maximum should be like this. So some sometimes in some cases we’ll get a condition. So in such case, we are telling to the system, defining of minimum or maximum amounts for calculation of base amount, we do take the help of withholding tax at code level. There are 2 things, withholding tax code level, withholding tax type level. It is always safe to take up code level. The reason is the percentage and even SAP also recommends the same thing, but sometimes even type of tax also we can take. Here code means percentage. Type of tax means the key, withholding tax key, whatever we define. And, define minimum or maximum amounts for the base amount with define minimum or maximum amount for withholding tax amount, you need to understand the difference here. Base amount means, say, for example, 1 lakh. This is base amount and withholding tax here, different minimum or maximum, if you have a condition like it should be minimum certain tax amount, that is called condition type. That is a condition for the purpose of calculation of the tax, minimum or maximum amounts at base level or at certain tax level. Both we are going to define at withholding tax code level. 

At one stage, we are going to calculate even that. See here, for example, here, what is this amount limit? 

If the amount is 30,000 or less, we need not deduct tax. If the amount is more, then only we have to calculate. Now what is this? Is this defined minimum or maximum amount, base amount or tax amount? Base amount. Here, base amount is maximum up to 30,000, we need not deduct any tax. So if you are going to define a rule like that, I am telling to the system, in case if I am going to have a rule, I am going to take withholding tax code level. We are going to define this. When I am going to define, I will remind you this. Even with tax amount also sometimes there will be a restriction on the tax amount. But in India, we don’t use this. Right? So, withholding tax 1, TDS.

Like this, as many number of withholding tax types you have, you have to create W1, W2, W3 like that. Save it. With holding tax 1. So like this, any number of tax types you can define. Come back. 

Define withholding tax type for payment posting. This also we need to define not now, when we discuss about the advanced, then I’ll tell you. 

Now withholding tax code, define withholding tax codes. Go to New entries.

Now withholding tax type, W1. Withholding tax code, even this also I want to define it as W1. Here, 10% TDS on payments to professionals under section 194J. Here with holding tax key, you can define here. See, in the first step, we have defined, that you take it. Percentage subjected to tax. What is the percentage subjected to tax. Don’t think 10%, it is 100%. This means what is the percentage of the base amount subjected to tax? Means total 100% is subjected to tax. Here, post indicator, post to GL account. Standard posting, offsetting entry GL grossing up, offsetting entry, take 1, standard posting. Bank vendor customer line item reduced. Take standard posting 1. Withholding tax rate, this is 10%. Press enter. Right? So this is withholding tax code. What we are defining is the withholding tax code. And if you can have, it is better to have withholding tax type and code the same you define. System will not put any problem for this because that is type, this is code. Both are different objects. That’s why we can use the same indicator. I think it is better to use the same indicator because if you are going to define different things, subsequently we are going to make a combination. At that time, we’ll get a problem. Save it. Come back. So like this, any number of percentages, you can define like this.

Assign withholding tax types to company code. Now after defining your withholding tax type, etc, what you can do Check recipient types. Go to new entries. 

Here, return tax type is visible now. Now recipient key. Here, we can take one is corporate SSE, non corporate SSE. Right. For that, generally, what we use the terminology is see, in the notes, I’ve given all these 3. 

Yeah. Company other than company, CO, OT, withholding tax W1. Here, take recipient type CO, text company. Next, again it’s withholding tax W1, OT, other than company. For each type of tax, you need to define like this. For each type of tax both because this W1 may be defined for company even other than company also. 

Extended withholding tax, Company code, Assign withholding tax types to company code. Now what are the type of tax that we are going to define that should be assigned to? Go to new entries. Company code, DRLB. Type of tax, W1, Recipient type. Recipient type, CO. Check withholding tax agent box because it has to update in the table. Sometimes, it may get delayed for some time. So, yeah, the purpose of putting this check mark is that we are eligible to deduct the TDS from the vendor. What are the payment of amount that we are going to do? So we are eligible to get the TDS, so we need to check this box. Then validity, say for example, from 01.04.2013. Valid up to 31.03.2014. Press Enter.

Post process open items after charging relevant withholding tax types. No issues. Ignore the message. What system says is that in case, see, already you are posting the entries. Now you are again configuring the TDS. So already vendor item, whatever you have posted, this is not applicable. That’s what it is saying. Yes we know that.

Now activate withholding tax, let us activate it. So go to our company code DRLB. Check this box. Save.

Caution: You are activating the extended withholding tax functions. So we have activated extended withholding tax.

Now next is posting. So now we are going to post withholding tax amount. For that, we need to make automatic assignment of the GL accounts. Now for that purpose, we need to define GL account. So for the GL account, we can activate, exchange, and assign GL account. Right. 101001, other liabilities. And we can take in current liabilities also, you can take it up, of course. Go to FS00. So account group, 101001. Since we are using current liabilities, just have taken only other liabilities, but you can take in current liabilities also. That’s more appropriate. So TDS is nothing but a liability. Why? Because with one hand, we are collecting it. On the other hand, we are paying to the central government account. So that’s why liability.

Balance sheet account, TDS liability account. So this can be called even withholding tax. Under control tab check Only balances in local currency, line item display. Sort key 001, field status group G001. Save it

Define accounts for withholding tax to be paid over. DRCA is our chart of accounts. 

Check withholding tax code and withholding tax type. And here, the transaction, there will be a transaction. I told you that whenever we are going to assign any GL account for automatic posting, account key or transaction key is a must.

Several places, we have seen this. So there is a fundamental rule you need to remember. Whenever there is an account key that we need to define a GL account. But now, we are telling to the system, we are going to assign or we are going to define a GL account in the combination of withholding tax code and withholding tax type. That’s why I need to check both this and save it. What happens? 

See, these two columns are coming if you are checking this. If you don’t check those two boxes, this columns will not come. So now withholding tax type anyway, our withholding tax will be there here. 

So here we are telling to the system if my withholding tax type is W1, withholding tax code is W1 then post to this GL account. Similarly, you can create any number of withholding tax types and codes. In that combination, you have to give the GL account.

Now next step is accounts payable. Go to master records. Now we are going to create vendor.

What vendors? Service vendors. These are the vendors who provide service to the company. So now create service vendor group. Account group DRSV,  service vendor group DRL. Name Mehta and Company Legal Advisors.

Press enter. So recon account. Here, let us see the recon account, Service vendors. Sort key 001, cash management group A1. A1 is nothing but domestic payments. 

Then again, press enter. Payment terms, 0001, tolerance group DR09. Now you are going to get new field, new screen. 

This is the new screen. Till now we do not have this. Once you activate the withholding tax, then only the screen will come. Until then, you’ll not get this. Withholding tax country, India. And withholding tax type, withholding tax code. See, W1. Here also, W1. Liable, this party is liable for deduction of tax. Recipient type, company. 10% it is on payments to professionals. Save it. So we have assigned that withholding tax type and code to the vendor. So as many number of vendors you have, for all the vendors you need to assign the withholding tax type and the withholding tax code.

So now go to FS00. Let’s see. In 400, we have legal charges or something. I’m taking 306, 400306 with the template. GL account 400301 of company code DRLB. 

Change the name. This is Legal charges and fees. Now let us imagine that we have received a bill from our advocate. Now go to F-43. Right, post an invoice. KR vendor invoice, DRLB. So first of all, vendor account credited, then expenditure account is going to be debited. So Mehta and Company legal advisers.

Say, amount 1 lakh. Text description TDS on legal charges. Now whatever the amount that we paid to the advocate, the legal charges, I need to deduct TDS on that. See, first line item is the legal adviser’s account is going to be credited, then the expenditure account is going to be debited. So once you post 400306.

Yes. If you get this small screen, then system is going to deduct TDS. 10% TDS on payments to professionals. So payment to professionals may be legal advisers, advocates, and auditors, company secretaries, cost accountants, architects, everybody. So once you complete this entry, click on overview, you can see only the line items which you have entered. 

To calculate the tax, what I need to do is go to document, simulate. Even in case of sales tax, we have done the same thing. Oh, I forgot one step. But still it will calculate but it will not allow you to save the document. 

Section code not copied to withholding tax lines. No issues. 

So this is the entry I was explaining to you. See, vendor account is going to be credited, Legal charges account 1 lakh debit, then liability for TDS is going to be credited. Now but system will not allow you to save now.

See? Because we have to do one more step, I forgot that. Number 1, PAN is not available. So we need to get the PAN activated. So anyhow, we cannot do this now. Come out.