Il tds tax_deduction_at_source

Oracle Applications: India Localization

KPIT Tax Deduction at Source2.0 .doc Page 1 of 34

Oracle Application – India Localization

User Reference Manual For

Tax Deduction at Source

KPIT Cummins Infosystems Limited Plot No. 35/36, Rajiv Gandhi Infotech Park,Phase I, MIDC, Hinjwadi, PUNE-411057, India

Tel: +91 20 5652 5000, Fax: +91 20 5652 5001

www.kpitcummins.com



Table of Contents

Tax Deduction at Source ............................................................................3

1. Background................................................................................................ 3

Objective of TDS ..................................................................................................... 3 Where is it applicable? ............................................................................................ 3 TDS in India............................................................................................................ 4

2. Setting up TDS functionality of India Localization. ...................................... 5

Define Organization TAN Number............................................................................. 6 Define Tax Authority for Income Tax (TDS Authority) ............................................... 7

Define TDS Sections ................................................................................................ 8 Define TDS Vendor Types ........................................................................................ 9 Define Tax Codes for TDS ...................................................................................... 10

Define TDS Year .................................................................................................... 11 Define TDS Threshold Limits ................................................................................. 12 Define Supplier Additional Information for TDS Details .......................................... 14

Define Transaction Types for TDS Credit Memo...................................................... 16 Define Transaction Source for TDS Credit Memo .................................................... 17 Define Customer Additional Information ................................................................ 18

3. Using TDS Functionality in Oracle Applications (Transactions)................... 19

Handling TDS Deduction in Oracle Payables ........................................................... 20

TDS Deduction on Transactions............................................................................................... 20 Payment to TDS Authority........................................................................................................ 24 Generating TDS Certificates..................................................................................................... 25 Handling eTDS.......................................................................................................................... 29

Handling TDS Deduction in Oracle Receivables ...................................................... 31 Receiving and Entering TDS Certificates................................................................................. 31 Creating Credit Memos for the Amount Deducted .................................................................. 32

4. Standard Reports Related to TDS .............................................................. 34

1. India - TDS at Lower Rates Report.................................................................................. 34 2. India - TDS Related Invoices............................................................................................ 34 3. India - TDS Prescribed Rate Report................................................................................. 34



Tax Deduction at Source

1. Background

Tax Deducted at Source (TDS) is one of the methods of collecting income tax from the income tax payers or assessees in India. In such cases, tax is directly collected at the source at which the income arises or generates. Whenever any specified type of income arises or accrues to an entity, Income Tax Act calls for the deduction of a specific percentage of such income, and payment of only the remaining amount to the recipient of such income.

TDS is a common practice in all the countries of the world.

Objective of TDS

Tax Deducted at Source was introduced in India to facilitate the payment of tax while receiving the income and it follows the concept of “Pay as you earn”. However, the purpose of tax deducted at source is changing slowly. Now, the objectives of tax deducted at source are:

1. To enable the salaried people to pay the tax as they earn every month. This helps the salaried persons in paying the tax in easy installments and avoids the burden of a lump sum payment.

2. To collect the tax at the time of payment of income to various assessees such as contractors, professionals etc.

3. Government requires funds throughout the year. Hence, advance tax and tax deducted at source help the government to get funds throughout the year and run the government smoothly.

4. It helps to spread the tax net wide enough to include persons who might otherwise have evaded taxes. The minimum thresholds are raised and the rates are reasonable and comparable with the rates prevailing in other countries. Hence, it is very vital to make all the persons earning the taxable income pay the tax. But, the best way to make them pay is to deduct tax at source.

Where is it applicable?

Tax deducted in this manner needs to be deposited in the Government treasury and assigned to the Central Government, within a stipulated time period. Indian Government is adhering to the policy of TDS to broaden its tax bracket in the country. Income gained through several sources falls under the tax deduction at source or TDS scheme. Some of such incomes that are subjected to ‘Tax Deduction at Source” are as follows:

• Salary • Interest • Rental fee • Interest on Securities • Insurance commission

• Dividends from shares and UTI/Mutual Funds • Commission and brokerage • Prize money won from lotteries, horse races, etc • Payments to non-resident sportsmen or sports associations



• Commission on sale of lottery tickets • Fees for professional and technical services and the like • Compensation for compulsory acquisition • Income from units of an offshore fund • Income from foreign currency bonds or shares of Indian Companies (unless specified as tax-free)

TDS in India

The Income Tax Act provides that the responsibility of deduction and payment of taxes lies with the taxpayer. The person entitled to the income shall be entitled to claim based on the certificates provided by the taxpayer, the deducted amount of tax from his total tax liability. However, the taxpayer shall be liable for penalties if the tax is not deducted and paid to government according to the provisions of the Income Tax Act.

The liability of tax arises on the credit to the account of the Vendor or on Payment whichever is earlier. When a prepayment is to be applied to the Invoice, TDS should not be deducted or it should be adjusted from the Invoice to the extent it was deducted from Prepayment.

Every person who has to deduct tax at source has to obtain Tax Deducted at source Number (TAN) and it has to be quoted in all TDS challans, Returns and Certificates. Each unit or branch of the organization which is liable to deduct tax has to obtain a separate TAN.

Tax Deducted at Source has to be deposited with the Central Government within the prescribed time limit by using the appropriate challan. TDS has to be remitted within one week from the last day of the month in which the deduction is made.

However, if the amount is credited on the last day of the financial year, i.e.,

on 31st March, then the tax deducted can be deposited within two months from the end of the financial year, i.e., within 31st May. But, if it was credited or paid even on 30th March, then you will have time only up to 7th April. This extended two months time is available only in the case of the following items for which the payee’s account is credited on the last day of the financial year:

• Interest on Securities (Sec 193).

• Interest other than Interest on Securities (Sec 194A).

• Payments to contractors and sub-contractors (Sec 194C).

• Insurance Commission (Sec 194D).

• Payments to non-resident sportsmen or sports associations (Sec 194E).

• Commission etc. on the sale of lottery tickets (Sec 194G).

• Commission or brokerage (Sec 194H).

• Rent (Sec 194-I).

• Fees for professional or technical services (Sec 194J).

• Other Sums (Sec 195).

• Income in respect of units of non-residents (Sec 196A).

• Income from Units (Sec 196B).

• Income from foreign currency bonds or shares of Indian company (Sec 196C).

• Income of Foreign Institutional Investors from securities (Sec 196D).



2. Setting up TDS functionality of India Localization.

The following setups are required for TDS functionality of India Localization.

Step 1 Required Define Organization TAN Number

Step 2 Required Define TDS Authority

Step 3 Required Define TDS Sections

Step 4 Required Define TDS Vendor Types

Step 5 Required Define TDS Tax Codes

Step 6 Required Define TDS Year Information

Step 7 Optional Define TDS Threshold Limits

Step 8 Required Define Supplier Additional Information

Step 9 Required Define Transaction Types for TDS Credit Memo

Step 10 Required Define Transaction Source for TDS Credit Memo

Step 11 Required Define Customer Additional Information



Define Organization TAN Number.

If you plan to use the TDS functionality for an Organization, it would

become mandatory for you to enter the Income Tax Registration details in the ‘India Org. Info’ context of the DFF attached to the Organization screen. This setup needs to be done either at the Legal Entity level or at the Operating Unit level. This setup cannot be done for Inventory Organizations.

Impact of Organization TAN Number on transactions?

• The value entered in the TAN No. field would be of great importance to you. This would be the basis on which the TDS Threshold limits would be

calculated.

• If the TAN No. is defined only for the Legal Entity, then Invoices generated for all supplier sites defined under different Organizations would be considered for the calculation of Threshold limits.

• If TAN No. is defined for an Operating Unit, then only the Invoices defined for this Organization would be considered for the calculation of the Threshold Limits, unless the TAN No. for two Operating units is the same.

• For Operating Units with no TAN Number, the TAN No. of the Legal Entity would be considered and the Invoices of all such Operating Units would be added to /considered for the calculation of Threshold Limits.

• Also, Organizations with same TAN Number shall share the document sequence followed for generation of TDS Certificates.

• TAN No. once saved, should not be updated.



Define Tax Authority for Income Tax (TDS Authority)

The liability arising from the Income Tax Deducted at source, while making

supplier payments needs to be accounted against an Income Tax Authority. You would create a Supplier and 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’ Type of Tax, the Supplier name would be listed in the ‘Vendor’ field LOV on the Tax Definition screen.



Define TDS Sections

India Localization comes with pre–seeded, default TDS Sections in the

database. However, you should review these default sections and decide whether to change them to suit your business needs. If you want or need to change them, you should query on the ‘TDS_Sections’ from the Purchase Lookup Codes and add a new record, with the relevant descriptions and the effective period. As the same codes are also used for the Works Contract Tax applicable in you state, you might prefer to a new records for defining the relevant sections.



Define TDS Vendor Types

India Localization comes with pre–seeded, default TDS Vendor Types in the

database. However, you should review these default types and decide whether to change them to suit your business needs. If you want or need to change them, you should query on the ‘TDS Vendor Type’ from the Purchase Lookup Codes and add a new record, with the relevant descriptions and the effective period.



Define Tax Codes for TDS

You would use the Tax Definition screen to define the TDS Codes. Choose

the ‘Tax Deduction at Source’ option in the Type LOV. Select the Vendor Name, Vendor Site, Account and TDS Section No. Enter the value in the Percentage and Rounding Factor fields. Enter the value in the Surcharge field, wherever necessary.

Whenever, there is a change in the TDS Rates or Rates of Surcharge, user has to do the following to ensure that correct rate of TDS is applied to the transactions

1. Close the existing Tax Code by entering the 'Effective To' date. 2. Create a new Tax Code with the revised rates 3. Navigate to Supplier Additional Information, query for the Supplier, Supplier

Site. 4. Replace the Default TDS Tax Name with the new Tax Code.



Define TDS Year

Before you start using the TDS functionality in an Organization, you will

have to setup TDS Year Information. This year would be the Income Tax Reporting Year and is independent of the Tax.



Define TDS Threshold Limits

You can define TDS Threshold for a Vendor Type and TDS Section Code

combination. You can define Thresholds for Single Invoice as well as Cumulative Invoice Thresholds.

You can setup TDS Threshold Limits for a combination of:

• Vendor Type • Section Type

The above setup can be used as a default setup across Vendor Types. If you wish to setup different Threshold Limits for certain Vendors, you can do the same by setting up "Exception Setup". You can define as many "Exception Setups" as desired.

Single Threshold applies to a certain transaction only. If this Threshold is setup with a monetary limit, TDS will be deducted every time the current Invoice

Amount exceeds the Threshold Amount. Those Invoices, which are lower than the Threshold Amount, will be ignored for TDS Calculation.

Cumulative Threshold applies to aggregate of all Invoices for the Financial Year. If this Threshold is setup with a monetary limit; TDS will be deducted on all the Invoices after this monetary limit is reached. In case of the Invoice, due to which the Threshold Limit is reached, TDS will be calculated on all the earlier Invoices also (that were ignored TDS Calculation).

In case both TDS Thresholds are setup with a monetary limit, Single Invoice Threshold will operate only if the Cumulative Invoice Threshold is not reached. Once Cumulative Invoice Threshold is reached, Single Invoice Threshold will be ignored.

You have a flexibility to specify Effective Dates for each TDS Thresholds. These Effective Dates are validated / compared against the accounting date of the Invoice distributions and TDS Thresholds will operate only between these Effective Dates. Once an end date has been put a particular TDS Threshold, you can define a New TDS Threshold for that particular Threshold Type. Using this flexibility you can take care of the Threshold modifications happening from time to time without modifying any setup at the individual Vendor level.



Click on New to Define New



Define Supplier Additional Information for TDS Details

For the supplier for whom the TDS has to be calculated, recorded and

reported, you will have to define the ‘TDS Details’ in the Supplier Additional Information. You would define the Registration Details and the Applicable TDS Sections and TDS Tax Code that has to default for the transaction created for the Supplier.

‘TDS Details’ for the Supplier NULL Site



• Where the Registration and the Tax calculation details are the same for all supplier sites, you can define the ‘TDS Details’ for the Supplier NULL Site. The same details would be applicable for all transactions created any of the Sites.

• Where the TDS Details are different for the Sites, you can define the Registration Details at the Supplier NULL Site. For all the sites setup made for this Supplier, the TAN No and Ward Number defaults. You will have to enter the TAN No. and the TDS TAX Name and the relevant TDS Sections. If you have not entered the default TDS Tax Code in the TDS TAX Name field, for the supplier site, then the TDS TAX Name defined at the Supplier NULL Site would be considered for the Invoice.

• The Approval of TDS related information would depend on the value in the ‘Create Pre-Approved TDS Invoice & Credit Memo’ Field.



Define Transaction Types for TDS Credit Memo



Define Transaction Source for TDS Credit Memo



Define Customer Additional Information



3. Using TDS Functionality in Oracle Applications (Transactions)

We have divided this topic in 3 parts to keep this manual easy to understand, for those who refer this. These are as follows

TDS Deduction on Transaction: The liability of tax arises on the credit to

the account of the Vendor or on Payment whichever is earlier. In Oracle Payables one shall deduct TDS on either Prepayments or Standard Invoices. When a prepayment is to be applied to the Invoice, TDS should not be deducted or it should be adjusted from the Invoice to the extent it was deducted from Prepayment.

Payment to TDS Authority covers the Payment additional Information for the payments made to the TDS authority. This information is printed on the TDS Certificates issued from Oracle Payables.

Generation of TDS Certificates cover the process to generate TDS Certificates from Oracle Payables. You can generate TDS certificate to be issued as per the Income Tax Act. Based on the TDS section and Tax authority, you should first generate the TDS certificate. One TDS certificate can be issued for all the TDS deductions for a vendor based on the transaction range or individual TDS certificates can be generated for each TDS deduction.



Handling TDS Deduction in Oracle Payables

TDS Deduction on Transactions

Navigate to Invoices Window

Create a Prepayment or Standard Invoices (We are taking Example of Standard Invoice). You can chose the imported/Matched Invoices also.



Fill up the India Localization DFF (India Distributions) in the Invoice Distribution or if the Default Tax Code is set in the Supplier Additional Information then the TDS Tax Code will appear automatically.

Validate the Invoice (If approval is required, then get the Invoice Approved)



On the First Validation of the Invoice the System triggers “Import TDS invoices - invoice validate (Payables Open Interface Import)”

On completion of this concurrent system creates Credit Memo for the Supplier and a Standard Invoice for the Income Tax Authority. Search the Base Invoice with the % string in the Query Mode.





Payment to TDS Authority

Make Payment to the TDS Authority. (TDS authority is paid on monthly basis so it will be a good option to use Batch Payments functionality)

In whatever method the payment is made, the DFF (India Payment Information) of the Payment Screen must be filled with the TDS Challan Information

This Information is printed on the TDS Certificates issued by Oracle Payables. Challan NO. is a Numeric only Field.



Generating TDS Certificates

You can generate TDS Certificate to be issued as per the Income Tax Act. Based on the TDS Section and Tax Authority, you should first generate the TDS Certificate. One TDS Certificate can be issued for all the TDS deductions for a Vendor based on the transaction range or individual TDS Certificates can be generated for each TDS Deduction.

The following Concurrent need to be run in sequence:- � India - Process TDS Payments � India - Generate TDS Certificates � India - TDS Certificates

India - Process TDS Payments

This concurrent processes only for those Invoices where TDS deducted has

been remitted to the Tax Authority. Payments to the Tax Authorities can be done either by paying the TDS Invoices (generated on validation of supplier invoice) or by applying a prepayment invoice to the TDS Invoice.



India - Generate TDS Certificates

TDS Certificates would be generated only for those Invoices which are processed by the “India - Process TDS Payments”

This Concurrent creates the TDS Certificates. These Certificates can be seen in the View TDS Certificates Window.



Print Flag Once the certificate is printed the Flag is changed to “Y” from “N”



India - TDS Certificates

This Concurrent is the concurrent which creates a printable Layout of the

TDS Certificates. This concurrent can be run multiple times for the printing purposes, however, the Date of Issue (printed on the TDS Certificate) would be the systems date and not the date of generation (i.e. running the Concurrent “India – Generate TDS Certificates”). TDS Certificate (Form 16A Report)

India_-_TDS_Certificates.txt India_TDS_Certificates.htm



Handling eTDS

You can generate eTDS Returns using 'India – Program to Generate eTDS Certificates' Concurrent program. Prior to that you should completed validating Supplier Invoices and made payments to Invoices generated for TDS Authorities.

The concurrent program should be run for for a Particular TAN Number for a given financial year.

As the output would be flat file, the users would be provided with an option to generate the file with separators and Headers. The file can be generated in this format by checking 'Generate Headers' parameter of the Concurrent request. Using this file user can check the records and the appropriate values. On finding that the data is correct, you can choose select the file with same parameters, without headers. The file would be saved at the path specified in the ‘utl_file_dir’ parameter of the Database.

India - Program to Generate eTDS Certificates

eTDS Certificates.txt India_eTDS_Certificates.htm



India - Program to Generate eTDS Quarterly Certificates

Quarterly eTDS Certificates.txt India_Quarterly_eTDS_Certificates.htm



Handling TDS Deduction in Oracle Receivables

Receiving and Entering TDS Certificates

Navigate to Collection: TDS Certificates

Provide the Details of the TDS Certificates

On saving the transaction, the system creates lines in the Interface for Credit memo.



Creating Credit Memos for the Amount Deducted

Run Autoinvoice Master Program

View the Transaction





4. Standard Reports Related to TDS

It is a pre-requisite to run the ‘Generate TDS Certificates’ to view the data in ‘India – TDS Prescribed Rates Report’ and; India – TDS Lower Rates Report’.

1. India - TDS at Lower Rates Report

Use TDS at lower rates Report to calculate Tax deducted at source for a company or others for various TDS categories like Rent, Technical/ Professional services, Payments to contractors/Subcontractors etc.

2. India - TDS Related Invoices

This Report provides with the list of All Invoices for which TDS has been calculated. For each such Invoice, all TDS Related Invoices generated for the Invoice are shown.

India_-_TDS_Related_Invoices.txt India_TDS_Related_Invoices.htm

3. India - TDS Prescribed Rate Report

Use TDS at prescribed rate Report to calculate Tax deducted at source for a company or others for various TDS categories like Rent, Technical/ Professional services, Payments to contractors/Subcontractors etc.

India_-_TDS_Prescribed_Rate.txt India_TDS_Prescribed_Rate_Report.htm

Data & Analytics

Il tds tax_deduction_at_source