Withholding Tax

Withholding Tax is also called as retention tax. Its requirement of Government to deduct or
withhold a particular percentage from paying to the vendor and pay such amount to the
Government on behalf of other person. It’s a kind of Indirect Tax.

It's Represents the IT Section Codes as per Income tax Rules.

Ex:- 194A , 194C, 194D, 194H, 194I, 194J, 195.

The finance Act, 2021 has introduced new Section 194Q which is effective from 01.07.2021.
The provisions of new section 194Q require the specified buyer to deduct TDS on the purchase
of goods from the resident seller.

There are Different types of Taxes:-

1.TDS ( Tax Deduction at Source ) 194Q Purchase of goods.

2.TCS ( Tax Collection at Source ) 206C It's calculated by seller.

Tax deduction on specific service as per IT Tax sectors -> Withholding tax keys = Section codes

 Government inserted new TDS Section 194Q which will be effective from 01-July-2021,
which say any person , being a buyer who is responsible for paying any sum to any resident
(hereafter in this section referred to as the seller ) for purchase of any goods of the value
or aggregate of such value exceeding 50Lakhs rupees shall, at the time of credit of such
sum to the account of the seller or at the time of payment therefore by any mode,
whichever is earlier. Deduct an amount equal to 0.1% of such sum value exceeding
50Lakhs rupees as income tax.

 206CCA as per which higher rates of TCS to be applied for non-Filers of IT returns in the
last 2 years and if total tax deducted/collected is equal to 50000 INR or more.
1. Define the Withholding Tax Countries:

2. Define the Withholding Tax Keys:

 Withholding Tax key is used to identify different withholding tax types. A name is to be
given with the official key.

3. Define Withholding Tax Types:

 As per Income tax rule we should supposed to the deduct TDS/TCS either at the time of
Invoice or Payment, whichever is earlier.
 To address the above requirement we can use the withholding tax type to deduct the
TDS/TCS at the time of Payment or Invoice.
 We need to define separate withholding tax type for Payment and Invoice.

194Q

At the time of Invoice At the time of Payment

H1-194Q-CO H2-194Q-CO

H3-194Q-OT-W/PAN 0.1% Applicable H4-194Q-OT-W/PAN 0.1% Applicable

H5-194Q-OT-W/O PAN 5% Applicable H6-194Q-OT-W/O PAN 5% Applicable

At the Time of Invoice:

At the Time of Payment:

Note: Need to select Parameters at Payment Tax Type:

Central Invoice: Minimum Check:

Select: Central Inv. prop. Select: Minimum Check at Item Level

NOTE: Create same Tax Types for Invoice and Payment case for With PAN & Without PAN
cases.

4. Define Tax Codes:

 It represent the TDS Rates.

 In withholding tax code, different rates are maintained and on what basis the TDS
should be deducted is maintained.
 It Define has a combination of withholding tax key + withholding tax type +
withholding tax code.
 With this combination withholding tax codes maintain in the Tax Rates.

Note: Create other tax codes with (5Q Payment) 0.1% and (6Q Invoice,7Q Payment) for 5%
Tax rate for Non-PAN scenario for invoice and payment.
5. Assignment of Newly Created Tax type to Company Code:

Note: Similarly, Do it for the other Tax Types.

6. Activate the Extended Withholding Tax for Your Company Code:

7. Assignment of G/L Accounts to Tax Type Tax Code:

Note: G/L Account should be Open Item Management.

8.Map Invoice Time and Payment Time Tax Types and Tax Codes:

The newly created invoice time and payment time tax types and tax codes are mapped
here to ensure correct calculation of WHT accumulation value at the time of posting the
documents.

Note: Ensure that the tax rate and the official withholding tax key that you maintain for the
invoice time and payment time tax types and tax codes are the same.

9. Creation of Section Codes:

 It represent the "place" to deduct the TDS.

 Section codes to be created for each location and is used to identify under which tax
account deduction(TAN) number the item was posted.
 Business Place: It is the responsible place to be deducted the TDS amount and Deposit
to the Government.
Note: Section codes maintain with the Address details.

10. Creation of Section Code Group:

 If there are multiple section codes with same TAN num then they can be grouped under
one section code group and assigned in supplier master.

11. Activate Section Code group activation:

 We need to activate the section code group for the Company code.

12. Assign Section Code Groups to Section Codes:

 We need to map section code group to section codes.

 If we have TAN number. then, we need to Maintain the TAN number with section code
group.

13. Assignment of Tax Deduction and Collection account number( TAN) to Section Code:

 Maintain under table: J_1I_SECCO_CIT

 Here we need to assign Company code+ Section code + TAN combination.

14. Check Recipient Types:

 It is called Receiver type (or) Beneficiary type.

 Need to define for each Withholding tax type.
EX: Company with PAN, Company without PAN.

Others with PAN, Others without PAN.

15. Define Reasons for Exemption:

 Create exemption reason to be used while maintaining TAN based exemption details in business
partner master data.
 Same maintain for other tax codes if required.
 User Manual - TDS
Pre-Requisite in SAP

To perform the process of TDS deduction in the incoming invoice, mentioned pre-requisite for
TDS need to be followed in the Vendor master data:

Master data- vendor:

New withholding tax codes 4Q & 5Q to be assigned if vendor PAN details are existed and
Turnover is greater than 10crs and last 2 years ITR is filled.

4Q- TDS @ 0.1% will be calculated at the time of incoming invoice (FB60/FB65/MIRO)

5Q- TDS @ 0.1% will be calculated at the time of Payment (F-53/F110)

New withholding tax codes 6Q & 7Q to be assigned if vendor PAN details are existed and
Turnover is greater than 10crs and last 2 years ITR is not filled.

6Q- TDS @ 5% will be calculated at the time of incoming invoice (FB60/FB65/MIRO)

7Q- TDS @ 5% will be calculated at the time of Payment (F-53/F110)

Withholding Tax Accounting Tab:

CIN Details:

 Maintain the PAN number In the CIN details under Withholding tax tab at PAN field.
TAN Exemption details:

 Maintain the TAN Exemption details in the CIN details under TAN Exemption tab
 If you have multiple TANs then for each section code threshold should be maintained.
 Same tax type and tax code to be used across different section codes.

TAN Exemption- Table:

Below table is updated when exemption details are maintained in the supplier master.

 Table: FIWTIN_TAN_EXEM
Key Points:
 For every transaction posted section code should be entered for correct updation of
accumulation table.
 Exemption certificate num should be strictly "TDSU/S 194Q".
 While posting invoice. Payment time tax type and tax code should be removed. Else it will again
lead to TDS calculation while posting outgoing payments.
 TDS Calculate on Base Amount only.
 For both with and without PAN the same table FIWTIN_ACC_EXEM will be updated with the
accumulation amount. you can use "customer/vendor account number" field in this table to
check the cumulative amount with vendor number.
 Accumulated amount in Tables WTAD for Customer and WTAK for Vendor.

TCS:

 In case of TCS the value for computing the TCS would be on invoice value including GST or any
other tax.
 Further in case the Goods are returned we cannot reverse TCS. The buyer would claim refund in
his income tax return. This rule is applicable for other TCS sections also like; Sale of Motor car.

Post the transaction in FB60/FB65/MIRO:

If the PAN provided and ITR is filed then 0.1% is calculated.

Accounting Entry

Cr 31 Vendor a/c 1999-

Dr 40 Material a/c 2000
Cr 50 TDS payable-sec 194Q a/c 1.00-

If the PAN provided and ITR is not filed then 5% is calculated.

Accounting Entry

Cr 31 Vendor a/c 1950-

Dr 40 Material a/c 2000
Cr 50 TDS payable-sec 194Q a/c 50.00-
 Q&A
1. What is the TDS u/s 194Q?

Ans: TDS to be deducted by the buyer @ 0.1 rate on purchase of goods if-

 The buyer's previous year turnover has exceeded 10crs INR.

 Invoice purchase value or aggregate of such purchase value exceeds 50lakhs.
 TDS to be deducted at the time of invoice or payment whichever is earlier.

2. Is TDS applicable on service procurement?

Ans: TDS is not applicable if-

 Tax is collectible under the provision of 206c other than 206c (1H).
 Goods is imported.
 On purchase of service.

3. Will TDS and TCS both be applicable?

Ans: On a single transaction either TDS or TCS one of it would apply. TDS will take precedence and if
buyer is not liable to deduct TDS then Seller should collect TCS.

4. TDS solution on sales/seller/accounts receivable side?

Ans: It is legally not required by the seller to capture TDS in the outgoing side as the buyer will be
depositing the deducted tax against PAN/Aadhar of the seller and the same can be adjusted by the
seller against his/her income tax liability.

In order to be able to close the open invoices on payment receipt users can post the balance
amount which buyer has deducted to a separate TDS account and clear it manually after receipt of TDS
certificate from buyers by end of every quarter.

5. Is TDS applicable on goods like Timber, Tendu leaves, Alcoholic liquor, Scrap etc where TCS u/s 206c
is applied?

Ans: No, TDS is applicable only on goods other than what is specified under the provision of 206c(1),
(1g), (1F) like Scrap, Timber, Tendu leaves etc.

6. TDS is applicable only on goods, so can both goods and service be clubbed in a single invoice?

Ans: TDS will be applied at header level and not line item level so if goods and services both are
clubbed in a single invoice then TDS will be applicable on the entire invoice value. So one should not
post goods and service together in the same invoice.
7. What if buyer is buying tendu leaves u/s 206c and plastic box u/s 194Q from the seller? How to
handle this?

Ans: TDS will be applied at header level and not line item level so goods u/s 206c and 194Q cannot be
clubbed in the same invoice; Else on goods bought u/s 206c, TCS and TDS both will get applied.

So, it is suggested to post separate invoices for such purchases.

8. Withholding tax codes and types are assigned at vendor master level. So how to restrict TDS u/s
194Q for purchase like timber, tendu leaves, scrap etc...?

Ans: If from the supplier normal goods and goods like timber, tendu leaves, scrap etc.. are purchased
then this has to be handled at transaction level, one has to remove the withholding tax codes created
for 194Q under " Withholding tax tab" while posting the transaction through MIRO, FB60, Advance
payments etc..

9. Are there any exemptions from TDS for any suppliers like central govt, state govt etc?

Ans: As of now govt has not notified any suppliers to be exempt from TDS u/s 194Q.

10. What if buyer's turnover is not exceeded 10crs in the last FY? How do we turn off tax deduction?

Ans: If buyer's turnover is not above 10crs then the buyer is not liable to deduct TDS u/s 194Q, so such
buyers should not assign Withholding tax types and tax codes in supplier master for 194Q.

As there is no tax type and tax code in supplier master assigned; TDS will not be deducted u/s 194Q for
such suppliers.

11. What is the significance of TAN exemption in supplier master? What is the certificate number that
should be maintained?

Ans: TAN exemption feature in supplier master is used to do threshold check of 5000000 INR up to
which no TDS to be deducted. Certificate num should be " TDS U/S 194Q" Only as this value will be
used for validation during quarterly returns filling.

12. For 50 Lacks threshold check the purchase consideration should be from 01.04.2021 or
01.07.2021? How to handle it?

Ans: The purchase consideration should be from 01.04.2021.

So, when we maintain the value under exemption threshold column in TAN exemption tab ensure
that we have considered all the invoices, down payments, credit notes, debit notes, cancelation entries,
any litigation documents for the supplier that you want to exclude and then update the value.

There is no standard report to arrive at the values as this as this will be used only for this FY.
Example : If the purchase consideration (including invoices, down payments, credit notes, debit notes,
cancelation entries etc) from XYZ supplier as on 30.06.2021 is 4000000INR then we will have to update
1000000 INR(5000000-4000000) under Exem. threshold column.

13. What if TCS is already charged by seller before 30.06.2021 and the buyer is posting incoming
invoice after 01.07.2021?

Ans: As per the explanatory memorandum to budget 2021, if on a transaction TDS is deducted under
section 194Q, then TCS is not required under sub-section (1H) of section 206C and not vice versa.
Accordingly, in the above case TDS under section 194Q is applicable even on the transactions on which
TCS under section 206C (1H) has already been applied till June 2021.

14. What will happen to TCS charged by seller? will it not lead to double taxation?

Ans: Buyer will get the TCS credit while filing his income tax return and this will automatically appear in
Form 26AS of the buyer [ Tax credit statement] seller will get TDS credit and buyer will get TCS credit
automatically while filing their respective income tax returns.

15. TDS is posted at the time of invoice but why is TDS again getting calculated at the time of actual
outgoing payment to supplier?

Ans: If we have assigned both invoice time and payment time tax types and tax codes in supplier master
then while posting invoice we should remove payment time tax code and have only invoice time tax
code.

16. As per the budget-2021 if the supplier has not furnished IT returns filed for last 2 years and he
total TDS/TCS is equal to or more than 50000 INR then TDS to be deducted at higher rate. How to
handle this?

Ans: If our supplier has not furnished IT returns and the TDS/TCS is equal to or more than 50000 INR
then follow resolution from KBA-3031916.

17. TDS applicable on stock transfer/ purchase of goods from one branch to another?

Ans: If the PAN of the selling unit and buying unit are the same then no TDS to be deducted.

18. TDS treatment for credit memos ?

Ans: There are 2 ways of handling this-

a. If TDS not to be reversed in case of Credit memos posted for purchase returns then remove the tax
code while posting credit memos.

b. If TDS is deducted at the time of invoice and is already paid to tax authority then during credit memo
TDS deducted can be adjusted against subsequent invoice provided reference is entered correctly for
the same vendor and section of IT Act.
19. Can a seller apply for certificate for lower deduction of TDS?

Ans: Yes, a seller can apply certificate for deduction of tax at lower rates. However finance bill 2021 has
not proposed to extend the benefit to apply for a certificate for deduction of tax at lower rates or to ile
declaration for nil deduction in respect of transactions covered under section 194Q.

20. Will accumulation work for supplier created across multiple company codes?

Ans: No, For India all transactions and postings happen at company code level and if one supplier is
created across multiple company codes then accumulation will not work.

ideally one PAN should be linked to one company code only. If for different branches you are trying to
have different company codes then section code should be used instead.

21. Will there be any indicator to identify if supplier has filed IT returns for last 2 years or not and if
total TDS/TCS is equal to or more than 50000 INR?

Ans: No, we will not provide any indicator at supplier master level as this will just be an additional
maintenance activity.

The user should still maintain correct withholding tax type and tax code with higher rates if the same is
not furnished.

22. What if supplier furnishes PAN in the middle of the FY. How to handle this?

Ans: If the supplier furnishes PAN in the middle of the FY then update PAN num and correct tax type
and tax codes with lower TDS rate in supplier master.

Ensure that all the open documents are taken care of before updating withholding tax types and tax
codes with lower rate.

23. How to handle threshold maintenance if PAN is provided by supplier in the middle of FY?

Ans: A. If for a supplier who has not furnished PAN, threshold of 20lakhs is maintained as on 01.07.2021
and purchase of 17lakhs has happened till 30.09.2021 after which the supplier provides the PAN num.
Then in the supplier master , next tax type and tax code with lower rate will be updated and exem
threshold amount of 3lakhs should be updated.

B. If for a supplier who has not furnished PAN, threshold of 20lakhs is maintained as on 01.07.2021
and purchase of 45lakhs has happened till 30.09.2021 with higher TDS applied on purchase of 25lakhs
after which the supplier provides PAN num. Then in the supplier master, new tax type and tax code with
lower rate will be updated and nothing to be maintained under exemption tab as threshold is already
crossed.
24. Higher TDS to applied if PAN is linked to AADHAR. How to handle this?

Ans: From the income tax portal, one can check the status if PAN is linked to AADHAR. If not then tax
types and tax codes with higher rate should be assigned in supplier master.

25. Missing Customizing path for section code, TAN, and CIT Address Mapping in SPRO?

Ans: Maintain the same through SM30.

View name: J_1I_SECCO_CIT

26. If multiple suppliers share same PAN, How to maintain threshold?

Ans: If the PAN is shared across multiple suppliers then the same threshold value should be maintained
foe all the suppliers.

For Example:

From SUP1 with PAN purchase of 20lakhs is done

From SUP2 with PAN purchase of 12lakhs is done

Then while maintaining threshold for both SUP1 and SUP2 18lakhs should be maintained in TAN
exemption tab of supplier master.

27. What should be maintained in TAN exemption tab if the threshold of 50lakhs is already crossed?

Ans: If the threshold is already crossed then no need to maintain anything in TAN exemption tab of
supplier master.

28. As the accumulation happens at PAN level for the combination of tax type and tax code, how to
handle a scenario where PAN was initially not provided by supplier and has furnished it later on after
a couple of months?

Ans: If the PAN/IT returns filed is not furnished by supplier then withholding tax codes and tax types
with higher TDS rate will be assigned in supplier master.

Once supplier provides PAN/IT returns filed then withholding tax types and tax codes with lower TDS
rate should be updated in supplier master with right threshold value considering previous postings with
higher TDS.

Example: Supplier 1 has not provided PAN. So tax type and tax code with 5% TDS is assigned in supplier
master with threshold value as 30lakhs as on 01.07.2021 assuming that from 01.04.2021 till 30.06.2021
purchase of goods worth 20lakhs is already done.

Now on 01.10.2021 if the supplier furnishes PAN num.

As on 30.09.2021 total accumulation value(from FIWTIN_ACC_EXEM) for supplier 1 with tax type and tax
code of 5% TDS is 22lakhs.

So now supplier master should be updated with PAN num and new tax types and tax codes and
threshold in TAN exemption should be maintained as 8lakhs as 22lakhs threshold is exhausted with NO
PAN.

Postings and 20lakhs threshold is exhausted before 01.07.2021.

29. If TDS is deducted at the time of down payment/advance payment then can it be adjusted at the
time of invoice posting?

Ans: As of now TDS adjustment at the time of invoice posting is not possible for TAN exemption
scenarios and the same should be handled through down payment clearing via F-54.

30. How to handle if incorrect PAN num is maintained in supplier master and is realized after postings
few documents?

Ans: Ideally PAN num should be maintained correctly and is not be changed once the same is
maintained and documents are posted.

If by mistake this has happened then-

A. All the documents posted with incorrect PAN should be reversed first.

B. Delete the TAN exemption details maintained in supplier master.

C. Maintain/update correct PAN num and save.

D. Then maintain the TAN exemption details again with correct exemption threshold amount.

31. If the invoice or advance payment is done before 30.06.2021 when TDS rule was not there and if
the payment against those invoices or invoice against the advance is done after 01.07.2021, What
should be done?

Ans: If the invoice is done before 30.06.2021 and the payment is made after 01.07.2021 then no
question of TDS will arise in such cases.

If the advance is done before 30.06.2021 and the invoice is posted after 01.07.2021 then while invoice
posting system will compute TDS based on the threshold check and when you adjust the invoice against
advance payment posted prior to 30.06.2021 then DPC will not reverse any TDS as there is no tax type
and tax code in down payment/advance payment document.

So, in such cases the option is to remit the TDS and inform the supplier to claim refund or adjust against
their ITC (or) run J1INJV and enter the invoice num and reverse the TDS amount.
32. If there are multiple business place and single section code/TAN num then how to maintain
entries in "Define section codes for WHT"/view V_SECCODE?

Ans: Just maintain section code entry in the view or IMG path and leave business place field blank.
Business place mapping with section code is not required for withholding tax.

33. When you execute J1INCHLN below error occurs, How to handle it?
No unpaid tax lines exist for the given section criteria. Message no. 8I702

Ans: If there are no documents posted for the selection criteria with TDS amount then it means there is
no liability to be paid to tax authority so J1INCHLN will throw the mentioned error.
Along with the TDS exempted documents(Below threshold) only if at least there is one document with
TDS amount posted then J1INCHLN will execute without the mentioned error.