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SAP Financials Extended With Holding Tax4,195

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Pramila Raj Jr.SAP FI ® Certified Associate Solution Practitioner™, Looking for 1st SAP FI IMP Project PERMT at BLR.Jr. SAP FI Certified Practitioner™ BEML Solutions LimitedFollow Following13 4 0 0

Published on Mar 12, 2013

This Document relates to SAP Financials Extended With Holding Tax for Quick study. Copy Rights ©

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SAP Financials Extended With Holding Tax

1. 1. SAP Financials – Extended With Holding Tax Extended With Holding Tax in DetailPrepared By: Ms.Pramila Nagaraj First Class MBA FinanceGraduate (200910) Global Academy of Technology, Bangalore (VTU Belgaum)Trained up in SAP FICO @ SAPPHIRE Consulting Services and @SAPTAC Bangalore (FRESHER) Copy Rights © 20122013 SAPTAC BANGALORE

2. 2. SAP FINANCIALS EXTENDED WITHHOLDING TAXBasic Settings Extended Withholding TaxTask1 Check Withholding Tax CountriesIMG⇒ Financial Accounting ⇒Financial Accounting Global Settings ⇒Withholding Tax ⇒ExtendedWithholding Tax⇒Basic Settings ⇒CheckWithholding Tax CountriesThe withholding tax country is needed for printing the withholding tax form. Since the list of country IDs prescribed bylawis different from the list in the system, you have to define the withholding tax countries again.Task2 Define Official Withholding Tax CodesIMG

⇒Financial accounting ⇒Financial Accounting Global Settings ⇒Withholding Tax ⇒ExtendedWithholding Tax⇒Basic Settings ⇒Define OfficialWithholding Tax CodesIf your national tax authorities use withholding tax keys to identify the different withholding tax types, you can definetheseofficial names for your tax codes here.192 ⇒ TDS on Salaries194C ⇒ TDS on Contractors193 ⇒ TDS on Interest on Securities194I ⇒ TDS onRent194J ⇒ TDS on Professional ServicesTask3 Define Reasons for ExemptionIMG ⇒Financial accounting ⇒Financial Accounting Global Settings⇒Withholding Tax ⇒ExtendedWithholding Tax⇒Basic Settings ⇒Define Reasons for ExemptionHere we define reasons for exemption fromwithholding tax. This indicator can be entered in the vendor masterrecord or in the company code Withholding Tax master record information.Task4Check Recipient TypesIMG ⇒Financial accounting ⇒Financial Accounting Global Settings ⇒Withholding Tax ⇒ExtendedWithholding Tax⇒BasicSettings ⇒Check Recipient TypesThe type of recipient categorizes the vendor, which is necessary for printing the withholding tax form.Task5 DefineBusiness PlacesIMG ⇒Financial accounting ⇒Financial Accounting Global Settings ⇒Withholding Tax ⇒ExtendedWithholding Tax⇒Basic Settings⇒India ⇒Define Business PlacesCreate a business place for each tax deduction account number (TAN) that your company has. In the addressdata(which is printed on the vendor withholding tax certificates) maintain the tax office’s address Copy Rights © 20122013 SAPTAC Bangalore

3. 3. SAP FINANCIALS TDS Overview and ProcessOverview of TDSTax deducted at source (TDS) is a tax that is deducted from income that a companyin India pays to a recipient orsupplier if the income amount exceeds a specific statutory limit in a financial year.The types of income that are subject toTDS include: Salary. Interest and dividends. Winnings from the lottery. Insurance commission. Rent. Fees from professional andtechnical services. Payments to contractors and subcontractors.The withholding amounts for TDS can be deducted from an invoice submitted by asupplier or from the payment thatis issued to the recipient or supplier. Examples of recipients and suppliers include contractors, providers ofprofessionalservices, employees, and real estate landlords. Companies submit a TDS certificate to each supplier ona monthly or yearly basis. The certificateincludes the payments, as well as information about the company andsupplier. Companies must also submit an annual return to the government for eachrecipient or supplier for thefinancial year. TDS certificate can be either Form 16 (R75I10A) or Form 26QP2PIND (R75I122EQ). Form 16 is theTDScertificate which an individual submits and Form 26Q is the TDS certificate which a company submits to the taxauthorities.TDS must also be deductedfrom payments issued to third parties by both corporate and noncorporate entities. Theentity must deposit the amount owed for withholding at any ofthe designated branches of banks that are authorizedto collect taxes on behalf of the government of India. The entity must also submit the TDS returns,which containdetails about the payments and the challan for the tax deposited to the Income Tax Department (ITD).For electronic TDS, companiesmust generate the Form 26Q for each financial quarter. This is a statutoryrequirement for the ITD.Process of TDS :Continued in next page…… CopyRights © 20122013 SAPTAC Bangalore

4. 4. SAP FINANCIALSCopy Rights © 20122013 SAPTAC Bangalore5. 5. SAP FINANCIALSOr Copy Rights © 20122013 SAPTAC Bangalore6. 6. SAP FINANCIALSTDS/Withholding Tax Rates: Copy Rights © 20122013 SAPTAC Bangalore7. 7. SAP FINANCIALS Withholding Tax RatesRefer to With Holding Tax Rates Document Withholding Tax ConfigurationThe Withholding Tax

configuration enables the system to calculate and report TDS in India. The standardfunctionality is mainly used in withholding of tax from vendorinvoices and depositing the same with the taxauthorities.The basic withholding tax settings for India (Country India Version) will include the followingsub processes which arecommonly used within the main process. Defining withholding tax keys Defining branch offices (Section codes) Defining withholding tax type invoice & payment posting Defining withholding tax type for ECESS at Invoice posting Maintaining surcharges Defining withholding tax codes Defining GL accounts to post the withholding tax Maintenance of number ranges for tax certificates and ChallanCopy Rights © 20122013 SAPTAC Bangalore

8. 8. SAP FINANCIALS Configure Extended Withholding TaxSAP system provides two procedures for processing withholding tax; the “Standard” andthe “Extended” withholdingtax. We’ll walk you through on the basic configuration steps of the latter procedure.1. First, Check Withholding TaxCountries:Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax →Extended WithholdingTax → Basic Settings → Check Withholding Tax Countries.The “Change View Country Key for Withholding Tax: Overview” screen appears. Tocreate new entry, you may copyan existing country key by selecting the Copy button or you may create from scratch by selecting New Entriesbutton.Fill up the following fields: Country Key (Cty) – e.g. PH Withholding Country Key (WCty) – e.g. PH Description – e.g. WithholdingTax – Philippines2. Second, Define Withholding Tax Keys. These are codes use to identify the different withholding tax types of eachcountry.Path:IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax →Extended Withholding Tax → BasicSettings → Define Withholding Tax Keys.A popup window “Determine Work Area: Entry” appears. Enter your country code, e.g. ‘PH’. Then selectEnter buttonor press Enter on your keyboard.The “Change View Official Withholding Tax Key – Descriptions: Overview” screen appears. To createnew entries youmay copy an existing tax key by selecting Copy button or you may create from scratch by selecting New Entriesbutton.Fill up thefollowing fields: Official Withholding Tax Key (Off. Key) – e.g. ‘C010′. Text 40 (Name) – Professional talent fee paid to juridical person<=720,000.3. Third, Define Withholding Tax Type. Note that with “Extended Withholding Tax Procedure”, withholding tax can becomputed by thesystem during invoice processing or during posting of payments. Furthermore, the withholding taxon partial payments can also be computed ordetermined by the system automatically.Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → WithholdingTax →Extended Withholding Tax → Calculation → Withholding Tax Type → Define Withholding Tax for Invoice Posting (orfor Payment Posting).Apopup window “Determine Work Area: Entry” appears. Enter your country code, e.g. ‘PH’. Then select Enter buttonor press Enter on yourkeyboard.The “Change View Define Withholding tax type: Posting at time of invoice” screen appears. On the said screen, youmay create through copyan existing tax type or you may create from scratch. Select the Copy button or New Entriesbutton.Fill up the Withholding Tax Type and Descriptionfields. All other fields are already standard and more or less fit toyour withholding tax requirements in your country. Copy Rights © 20122013SAPTAC Bangalore

9. 9. SAP FINANCIALS4. Fourth, Define Withholding Tax Code. The tax code you create in this step should be assigned to the withholdingtax type andwithholding tax key created from the preceding steps. Furthermore, you enter also the tax rate and thebase amount of computation.Path: IMG →Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax →Extended Withholding Tax → Calculation →Withholding Tax Code → Define Withholding Tax CodeA popup window “Determine Work Area: Entry” appears. Enter your country code, e.g. ‘PH’.Then select Enter buttonor press Enter on your keyboard.The “Change View Withholding tax code: Details” screen appears. You may copy an existingtax code or you maycreate from scratch.Fill up the following fields: Withholding tax type – assign a withholding tax type you’ve created in step 3. Withholding tax code – create your withholding tax code. Description – Enter description of your withholding tax code. Official Withholding taxkey – assign a withholding tax key you’ve created in step 2. Percentage subject to tax (Base amount) – normally, 100% of the base amount is subjectto tax. Posting indicator – normally select ’1′ which means, there is one line item entry for the withholding tax and the amount is deducted fromt theline item of customer, vendor, or cash account. Withholding tax rate – enter the tax rate of the tax code. This will use by the system to compute theamount of tax during processing.5. Fifth, Assign Withholding Tax Types to Company Codes. Here, you assign the withholding tax types created instep3 to your Company Code.Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) → Withholding Tax →ExtendedWithholding Tax → Company Code → Assign Withholding tax type to Company Code.The “Change View Withholding tax information for companycode per w/tax type” screen appears. You may copy anexisting company code assignment or you may assign from scratch.6. Sixth, Activate ExtendedWithholding Tax for your Company Code. Remember, the activation of this tax procedureis on the company code level. You can’t use this taxprocedure to your company code, unless activated.Path: IMG → Financial Accounting (New) → Financial Accounting Global Settings (New) →Withholding Tax →Extended Withholding Tax → Company Code → Activate Extended Withholding Tax.The “Change View Enhanced withholdingtax functions active: Overview” screen appears. To activate, tick the checkbox “Ext. w/tax” of your company code.7. Finally, Define G/L Accounts forWithholding Tax. In this step, you assign the G/L account for Withholding taxposting.Path: IMG → Financial Accounting (New) → FinancialAccounting Global Settings (New) → Withholding Tax →Extended Withholding Tax → Posting → Accounts for Withholding Tax → Define Accountsfor Withholding Tax to bePaid Over.A popup window “Enter Chart of Accounts” appears. Enter the Chart of Accounts code then select Enter button

orpress Enter on your keyboard.The “Maintain FI Configuration: Automatic Posting – Accounts” screen appears. Select the G/L account you wanttoassign for withholding tax postings.Note, for every step above don’t forget to save your work. Select Save button or Ctrl+S after each step. CopyRights © 20122013 SAPTAC Bangalore

10. 10. SAP FINANCIALS Extended Withholding TaxEWT: TDS OverviewEWT: TDS (Tax Deducted at Source) Tax is deducted at source from allpayments/provisions which are hit by the TDS provisions of the Act Some of the above payments/provisions pertain to services that come within thescope of Tax Deducted at Source (‘TDS’) under the Indian Incometax Act, 1961 (‘Act’). Tax is not deducted from payment for goods TDS isrequired to be deducted at the time of payment or invoice posting whichever is earlier. The taxes which are so deducted, will then have to bedeposited to the credit of the Indian Government on or before 7th of next every month. The company will have to issue TDS certificates to thevendors for the tax deducted and also file with the tax office, Quarterly & Annual Return‘ of the total taxes deducted during the year under the varioussections of the Act. Copy Rights © 20122013 SAPTAC Bangalore

11. 11. SAP FINANCIALSEWT: Vendor TDS:EWT: Vendor Transactions: Copy Rights © 20122013 SAPTAC Bangalore12. 12. SAP FINANCIALSEWT: Customer Interest TDS:EWT: Provisions and Adjustments: TDS computed on entries in provisional liability accounts

(GR/IR and SR/IR Accounts) TDS is computed at each period end on uncleared entries remaining in the GR/IR and SR/IR accounts GR/IR andSR/IR accounts relevant for computing TDS on provisions identified separately GL accounts to which the provisional TDS is posted identified anddocument Type used for provisional TDS postings is separately identified JV facility available for carrying out changes to TDS relevant postings Accounts to which losses (nonrecoverable TDS) is to be posted and the document type to be used for TDS adjustment postings is identified separately.Copy Rights © 20122013 SAPTAC Bangalore

13. 13. SAP FINANCIALSEWT Activities:TDS:Due Date for monthly TDS return : 7TH of every monthTDS on Salaries192BTDS on Contractors194CTDS ON Rent 194ITDS on Professional Fees 194 JTDS Querterly Returns:1st QApr to June Due date15th of July2nd Q July to Sept DueDate 15 Th of Oct3rd Q Oct to Dec Due Date 15th of Jan4th Q Jan to Mar Due Date 15 Th JuneQuartly Returns:24Q for salaries27Q for other thansalariesContracts (including work land labour contract) – 194 c The tax has to be deducted @ 2% on contract paymentsand1% for subcontract andadvertisement contract payments. The tax is required to be deducted if a single paymentexceeds Rs. 20000/ or if the aggregate payments exceed Rs.50000/ per annum.Rent 194 i Any amount paid as rent above Rs. 120000/ per year will attract TDS provisions @ 10% for Individual &HUF and 20%for others.Fees for professional or technical services/royalty/Income on units of mutual funds: 194 jThe tax has to be deducted @10% with some basicexemption limits.Interest on securities/Dividends/Interest/Insurance commission:193, 194, 194A& 194D The tax has to bededucted @ 20% fordomestic companies and 10% for others with some basic exemption limits, in the case ofinterest if the amount of interest is up to Rs. 5000/ during afinancial year. however, in the case of interest paid by a Copy Rights © 20122013 SAPTAC Bangalore

14. 14. SAP FINANCIALSbanking company, Cooperative society engaged in the business of banking and a public company engaged in thefinancing orconstruction of residential houses in India, this limit is Rs. 10000/.Insurance commission: Any person responsible for paying to a resident anyremuneration or reward whether byway of commission or otherwise, for procuring insurance business is required to deduct tax @ 20% forcompaniesand 10% for other person if the amount credited or paid is more than Rs. 5000/ in a financial year. Copy Rights © 20122013 SAPTACBangalore

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