TAX DEDUCTED AT SOURCE (TDS)

IINTRODUCTION : Tax Deducted at Source is one of the mode of collecting Income Tax from
the assessees. Such collection of tax is effected at the source when Income arises or accrues.
Hence, where any specified type of income arises or accrues to any one, the Income-tax Act
enjoins on the payer of such income to deduct a stipulated percentage of such income by way
of Income-tax and pay only the balance amount to the recipient of such income.

The tax so deducted at source by the payer has to be deposited in the Government treasury
to the credit of Central Government within the specified time. The tax so deducted from the
income of the recipient is deemed to be payment of Income-tax by the recipient at the time
of his assessment.

The person responsible for deducting Tax at source is liable to issue a certificate to the person
from whom the tax is deducted, so that the person can submit the same to Income Tax
authorities.

TDS Terminologies :- It is important to Understand some of the terminologies & concepts of

TDS

TAN : TAN is the Tax Deduction Account Number issued by Income Tax Department to all
persons deducting tax at source. TAN has to be quoted in all relevant challans, tax deduction
certificates, TDS returns and other notified documents. To obtain TAN, all persons or
organisations are required to apply in Form 49B to the TIN facilitation Centre of NSDL.
The format of the 10 digit alphanumeric TAN – BLRN00789B is: BLR indicate the location code
of the TAN allotment centre, (Eg. BLR for Bangalore), N indicates the first alphabet of the
deductor name, 00789 is the number within each location, B is the check digit for security and
verification.

DEDUCTEE (SELLER) : Provide services and Bills to the Deductor (Buyer)

DEDUCTOR : Deductor make payment after deducting TDS

DEDUCTOR : Remits the TDS amount into Bank (Treasury

BANK (TREASURY) : Remits the amount to the Government Account

DEDUCTOR issue FORM 16A to Deductee for the TDS amount deducted

DEDUCTOR files the e-TDS to NSDL

NSDL upload the e-TDS information to Income Tax Department

DEDUCTEE files the Return with FORM 16A to Income Tax Department
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TDS Certificate is a proof that deductor has deducted the tax and paid the same to the
government . This proof is essential to the deductee to claim the credit of tax in his Income
Tax Return\

U/S 203 of Income Tax Act, any person deducting the tax as per the provision of:

Section 192 (Salary) shall furnish a certificate of deduction of Tax in FORM 16 or FORM
16AA within one month from the close of Financial Year in which such deduction was made

Example: For the Financial Year 2007-2008 , TDS Certificate must be issued or before 30
April 2008

Section 193,194, 194A, 194B, 194BB, 194C, 194D, 194E, 194EE, 194F, 194G, 194-I, 194J,
194K, 194LA, 195, 196A, 196B, 196C and 196D shall furnish a certificate of Deduction of Tax
in FORM 16A with one month from the end of the month during which the credit has been
given or the payment has been made, as the case may be

In case of a deductee to whom more than one TDS certificate was issued for the deductions
made during the year , may or request from such deductee, a consolidated certificate in
FORM 16A may be issued within a period of one month from the close of such financial year

RETURN : Corporate & Non-Corporate entities (deductors) responsible for making payments
(specified under Income Tax Act) to third parties (deductee) and deducting tax at source at
the prescribed rates on such payments are required to furnish TDS returns containing details
of deductee(s) and the payment details relating to the deposit of such tax to Income Tax
Department.

The Following statutory returns have to be filled by the tax deductors

Form Nature of Payment Periodicity

Form 24Q Quaterly statement for tax deducted at source from Quaterly
“Salaries”

Form 26Q & Quarterly statement for tax deducted at source in respect Quarterly
Annexure to 26Q of all payments other than Salaries.

Form 27Q & Quarterly statement of deduction of tax from interest Quarterly
Annexure to 27Q dividend or any other sum payable to non-residents
 Form 24 Annual return of “Salaries” under Section 206 of Income Annual
Tax Act, 1961

Form 26 & Annual Return of deduction of tax under section 206 of Annual
Annexure to 26 Income Tax Act, 1961 in respect of all payments other than
“Salaries”.

Form 27 & Statement of deduction of tax from interest, dividend or Annual

Annexure to 27 any other sum payable to persons specified under Rule
37A of IT Rules, 1962

E-TDS RETURN : The Income Tax Department has now notified ‘Electronic Filling of Returns
of Tax Deducted at Source Scheme, 2003’. It is applicable to all deductors furnishing their
TDS return in electronic form . As per this Scheme,

• It is mandatory for corporate deductor s to furnish their TDS return in electronic

form (e-TDS) with effect from 1-June-2003
• For Government deductors it is mandatory to furnish their TDS return in electronic
form (e-TDS) from financial year 2004-2005 onwards
• Deductors (other than government or corporate) may files TDS Return n electronic
or physical form

▪ Form 26Q and 26

▪ Form 27Q and 27
▪ Print Form 27A ( to be filled in physical form with each return.)

TDS in Tally.ERP9

TAX (Tax Deducted at Source) in Tally.ERP9 provides an easy –to-use and flexible interface .
It helps you handle intricate cases and calculate the tax payable to the Income Tax
Department.
Tally.ERP9 calculate the Tax of all parties/suppliers where TDS deduction is mandatory . It
calculates the TDS automatically and prints FORM 16A Certificates, FORM 26Q, 27Q, 26, 27
and 27A (cover note) for Quaterly /Annual Returns as per statutory requirement.
It allow the user to view and print various TDS reports, Challan and TDS outstanding
statement.

Features of TDS in Tally.ERP9 : The TDS functionality in Tally.ERP9 support the following
features:
o Simple and user-friendly
o Quick and easy to set up and use
 o Accounting for tax payment of bills
o Flexibility for assisted calculation of TDS
o Complete tracking of each transaction from deduction to payment
o Challan management and printing for prompt and accurate filling of tax
o The auto allocation feature prevent error-prone data entry and helps track the
transaction faster
o FORM 16A management
• Can be printed for a transaction
• Can be printed for a period
• Can be printed yearly
o Allow multi-party printing
o Exporting of data in NSDL Compliant TDS file format
o Electronic formate (e-TDS return) with FORM 26Q, 27Q, 26 and FORM 27 and which
will be validated by the utility , provided by the government
o GenerateS FORM 16A, TDS Challan, TDS Computation and TDS payable reports

Create Company : M/s. National Enterprises

Gateway of Tall: Press : ALT+F3 (Company info)→Create Comapny
Than Enable TDS : Gateway of Tally Press: F11 : Company Feature→Statutory and
Taxation→
Enable Tax Deducted at Source (TDS) : YES
Set / Alter TDS Details : YES

Create Masters : Once you have enabled the company TDS, Create necessary Nature of TDS
payment, Expenses ledger, Party ledgers and TDS ledgers masters. The TDS option would
now be available in each type of ledger masters

Create the Following TDS Nature of Payment :

Steps: Gateway of Tally→Accounts Info→Statutory Info→TDS Nature of Pymts→Create

Name Section Rate Threshold Limit

Fees for Professional Or Technical Services 194 J 10% 30000

Advertisement Contractors 194 J 2% 30000

 Rent of Land Building Or Furniture 194 I 10% 240000

Commission Or Brokerage 194 H 5% 15000

Create the Following Expenses Ledger Accounts :

Steps: Gateway of Tally→Accounts Info→Ledger→Create
Ledger Under Inventory Is TDS Default Nature of
Value are Applicable Payment
affected

Consultancy Charges Indirect Exp. NO YES Fees for Professional Or

Technical Services

Advertisement Exp. Indirect Exp. NO YES Payment to Contractors

(Advertisement
Contractors)

Rent Exp. Indirect Exp. NO YES Rent of Land Building Or

Furniture

Commission Charges Indirect Exp. NO YES Commission Or

Brokerage

Create the Following TDS Tax Ledgers

Steps: Gateway of Tally→Accounts Info→Ledger→Create
Ledger Under Type of Nature of Payment
Duty/Tax

TDS on Consultancy Dutes & TDS Fees for Professional Or Technical

Charges Taxes Services

TDS on Advt. Exp. Dutes & TDS Payment to Contractors

Taxes (Advertisement Contractors)

TDS on Rent Dutes & TDS Rent of Land, Building Or Furniture

Taxes

TDS on Commission Dutes & TDS Commission Or Brokerage

Taxes

Create the Following Party Ledger Accounts :

Steps: Gateway of Tally→Accounts Info→Ledger→Create
Ledger Under Maintain Inventory Is TDS Deductee Type
Balances Value are Deductable
bill by bill affected

Evergreen Consulting Sundry YES NO YES Company-Resident

Services Creditor

Star Advertisement Sundry YES NO YES Partnership Firm

Agency Creditor

Ramesh Kumar Sundry YES NO YES Individual/HUF-Resident

Creditor

Silverplus Enterprises Sundry YES NO YES Body of Individual

Creditor

TDS Configuration : At the time of Party Ledger Creation Press F12 (Configuration) :
Allow Advance entries in TDS Master : YES [CTRL+A]
Use Advance TDS Entries : YES

Create Bank Ledger Account :

Steps: Gateway of Tally→Accounts Info→Ledger→Create : HDFC Bank : Under :Bank
Accounts

Processing Transactions : As discussed earlier, Tax Deducted at Source on incomes specified

by Income Tax department is affected at source when income arises / accrues or paid
whichever is earlier. Let us consider the following transactions to illustrate the TDS
functionality in Tally.ERP9.

BOOK EXPESNSES AND DEDUCTING TDS :

Example 1:
On 01/04/09, M/s National Enterprises received a Bill (Vide no. ECS/001/09-10) from
Evergreen Consulting Services, for Rs. 27,000/- towards Consultancy Charges.
Steps: Gateway of Tally→Accounting Voucher→Press F7 : Journal
1. Press F2 and change the date to 01-04-2009
 2. Select Consultancy Charges in the Debit field and Press Enter
3. Enter 27,000 in the Amount field
4. The Expenses Allocation Screen Display Select here the TDS nature of payment detail
and assessable value, Select Fees for Professional Or Technical Services as Nature of
Payment and the amount in the Assessable Value is defaulted to 27,000
5. Select Evergreen Consulting Services in the Credit field and Press Enter, The TDS
Details Screen is displayed in the TDS Details Select New Ref field
6. Select Fees for Professional Or Technical Services in Nature of Payment field
7. Select TDS on Consultancy Charges from the list of TDS Duty Ledgers press Enter
8. Select TDS on Consultancy Charges in the Credit Field

Example 2.
On 13/04/2009, M/s. National Enterprises received a Bill (Vide No. SAA/102) for Rs. 36,000/-
from Star Advertisement Agency towards Advertisement Expenses.
Create Purchase Voucher
Steps : Gateway of Tally→Accounting Voucher : Press F9 Purchase
After Selecting Purchase Voucher Press F12: Configure, Set Use Common Ledger A/c for Item
Allocation and Use Defaults for Bill Allocations to NO
13-Apr-2009

BOOKING EXPENSES AND DEDUCTING TDS LATER :

Example 3:
On 20/4/2009, M/s. National Enterprises received a Bill (Vide No. 024/09) for Rs. 9,000/-
from Silverplus Enterprises towards Commission Charges.
Note: The company intends not to deduct TDS on the above transaction at the time of
booking the expenses.
Create Journal Voucher
Steps : Gateway of Tally→Accounting Voucher→Press F7 : Journal
1. Press F2 and change the date to 20-04-2009
2. Select Commission Charges in the Debit field and press Enter
3. Enter 9,000 in the Amount field and press Enter
4. The Expenses Allocation screen appears Press Enter to accept Commission Or
Brokerage as Nature of Payment , The assessable value field is defaulted as 9,000/-
5. Select Silverplus Enterprises in the Credit field and Press Enter, the TDS Details
screen appears
 6. In TDS Details screen, enter the following details
• Select New Ref in Type of Ref field
• In the Name field, accept the default TDS reference number
• Select Commission Or Brokerage in the Nature of Payment field
• Select TDS on Commission in the TDS Duty Ledger field
• Set Deduct Now to NO ( In order to deduct the TDS later)
20-Apr-2009

Example 4:
On 23/04/2009, M/s National Enterprises paid Rs. 35,640/- to Star Advertisement Agency
towards Advertisement Expenses (Vide Ch. No. 145687)
Steps : Gateway of Tally→Accounting Voucher: Press F5 Payment Voucher
1. Press F2 and change the date to 23/04/2009
2. In Debit field, Select Star Advertisement Agency from the list of Ledger Accounts
3. Enter 35,640 in Amount field and press under to view Bill-wise Details Screen
4. In Bill-wise Details screen
• Select Agst Ref in the Type of Ref
• Select SAA/102 from the list of pending bills in Name field, Amount is
defaulted automatically
5. In Credit field, select HDFC Bank for the List of Ledger Accounts is defaulted
automatically
6. Enter the Cheque No. 14567 in Narration field
23-Apr-2009

Exampe 5:
On 23/04/2009, M/s National Enterprises paid Rs. 24,300/- (Vide Ch. No. 145690) to
Evergreen Consultancy Services towards final settlement of Bill No. ECS/001/09-10 dt. 10-4-
09
Note : Follow the Same Steps of Example 4
Example 6:
On 30/04/2009, M/s National Enterprises deducts TDS at the following rates on Commission
payable to Silverplus Enterprises (Vide Bill No. 024/09 dt. 20/04/09 – Refer Example No 3.
Create Journal Voucher
Steps : Gateway of Tally→Accounting Voucher→Press F7 : Journal
1. Press F2 and change the date to 30-04-2009
2. Press ALT+S or click on S: TDS Deduction button, to view TDS Deductions screen
TDS Deductions
Till Date : 30-Apr-2009
Party : Silverplus Enterprises
Nature of Payment :Commission Or Brokerage
30-Apr-2009

PAYMENT OF TDS : As per Income Tax Corporate & Non-Corporate entities (deductors)
making payment (specified under Income Tax Act) to third parties (deductees) are required to
deduct tax at source at the prescribed rates on such payments.
The TDS so deducted should be deposited to the credit of the Central Government within one
week from the last day of the month in which the deduction is made, into any of the designated
branches of banks authorised to collect taxes on behalf of Government accompanied by
Income Tax Challan ITNS 281
Example 7:
On 05/05/2009, M/s National Enterprises paid Rs. 2,700/- to Government towards TDS on
Consulting Charges for the month of April 09
Create Payment Voucher
Steps : Gateway of Tally→Accounting Voucher→Press F5 : Payment
Press F12 Configuration : Set Single Entry mode for pymt/recpt/contra : YES
 1. Press F2 and change the date to 05-05-2009
2. Press ALT+S or click on S: TDS Deduction button, to view TDS Deductions screen

HDFC Bank

05-may-2009

Provide Detail : YES

Note: Similarly pass payment entry for TDS on Advt.Expenses & TDS on Commission Or
Brokerage

PRINT ITNS Challan 281

The TDS amount is remitted to the Credit of the Government through TDS Challan ITNS 281.
To print the TDS Challan, follow the Steps given below
1. Press Pageup to go to payment voucher entry or go to Gaeway→Display→Account
Books→Ledger : Select : TDS on Consultancy Charges entry and press Enter
2. Press ALT+P on the payment voucher to view the Voucher Printing Screen
3. In the Voucher Printing screen
• Ensure Print as TDS Challan is set YES
 • Ensure other details are entered in the similar manner

PRINT FORM 16A

FORM 16A is acertificate in evidence of deduction of tax at source by the deductor and
payment of teh same into credit of the government. Form 16A is essential to claim of tax by
the deductor in his Income Tax Return, follow
To print FORM 16A : Gateway of Tally→Display→Statutory Reports→TDS
Reports→Return→ Form 16A
• In Select Item Screen, select party Ledger from the list of TDS Party Ledger
• In Printing TDS FORM 16A screen, enter the details and accept

PRINT FORM 26, 27, 26Q & 27Q

To PRINT FORM 26, 27, 26Q & 27Q : Gateway of Tally→Display→Statutory Reports→TDS
Reports→Return→ Select the Form.