TDS Calculation on Purchase and Payment Transactions
TDS can be deducted on expenses (GL Account) transactions. TDS can be deducted on purchase order, invoice received from vendor or advance payment made to vendor. TDS calculations can be done on following document types:
- Purchase Order
- Purchase Invoice
- General Journal
- Purchase Journal
Mandatory fields for TDS calculation on general journal, purchase journal, purchase invoice, purchase order.
Create General Journal or Purchase Journal
- Choose the
icon, enter General Journal or Purchase Journal, and then choose the related link. - Select Vendor in Account Type and select relevant vendor code in Account No. field. Select G/L Account in Bal. Account Type and select relevant expense account in Bal. Account No. field.
- Select relevant TDS Section on journal line. Location Code and T.A.N No. fields should not be blank.
- Choose the
Create Purchase Invoice or Purchase Order
- Choose the icon, enter Purchase Invoice or Purchase Order, and then choose the related link.
- Select Vendor, Location Code on Purchase Order or Purchase Invoice header
- Select G/L Account on Purchase Order or Purchase Invoice line. s4. TDS Section, Location Code and T.A.N No. fields should not be blank.
- Choose the
TDS to be calculated on vendor invoice (through general journal, purchase journal, purchase invoice or purchase order)
In the given scenario, vendor has issued an invoice for INR 50,000 on which 2% TDS is applicable under TDS Section 194C.
In this case TDS calculation will be as following:
Component Value TDS Base Amount 50000 TDS Amount 1000 (50000*2%) On posting of invoice, GL Entries will be as following:
Particulars Amount Expense Account 50000 TDS Payable Account -1000 Vendor Account -49000
TDS to be calculated on vendor advance payment (through general journal or payment journal)
In the given scenario, advance payment made to vendor for INR 50,000 on which 2% TDS is applicable under TDS Section 194C.
In this case TDS calculation will be as following:
Component Value TDS Base Amount 50000 TDS Amount 1000 (50000*2%) On posting of advance payment, GL Entries will be as following:
Particulars Amount Expense Account 50000 TDS Payable Account -1000 Bank Account -49000
On receiving the invoice from the vendor, TDS will be calculated on the differential amount. Suppose vendor sent an invoice of INR 120000. Since TDS has already been calculated at the time of payment, at the time of invoicing TDS will be calculated on the remaining amount i.e. INR 70000 (1200000 - 50000).
Note
Advance payment needs to be applied with the invoice before posting. Otherwise TDS will be calculated on the whole invoice amount.
TDS to be calculated on non-resident vendor invoice in foreign currency
In the given scenario, vendor issued an invoice for USD 10000 on which 2% TDS is applicable under TDS Section 195. All USD amounts will get converted into INR based on currency exchange rates. For this example exchange rate has been considered as USD 1 = INR 65.
In this case TDS calculation will be as following:
Component Value TDS Base Amount USD 10000 or INR 650000 TDS Amount INR 13000 (INR 650000*2%) On posting invoice, GL Entries, will be as following:
Particulars Amount Expense Account 650000 TDS Payable Account -13000 Vendor Account -637000
Tip
Nature of Remittance and Act Applicable are mandatory for NRI Payments.
TDS calculation on higher rate if vendor is not having PAN
PAN of vendor is mandatory for TDS calculation, but in case PAN is not available, higher rate of TDS will be deducted from the vendor.
In the given scenario, vendor issued an invoice for INR 50000 on which 2% TDS is applicable under TDS section 194C, but PAN is not available for vendor. In such a case 20% TDS will be charged as a higher rate.
In this case TDS calculation will be as following:
Component Value TDS Base Amount 50000 TDS Amount 10000 (50000*20%) On posting invoice, GL Entries, will be as following:
Particulars Amount Expense Account 50000 TDS Payable Account -10000 Vendor Account -40000
Expenses partially subject to TDS
In the given scenario, vendor issued an invoice for INR 112360, out of which INR 100000 is for auditing service on which 10% TDS will be applicable under Section 194J. INR 12360 is for other charges on which TDS is not applicable.
In this case TDS calculation will be as following:
Component Value TDS Base Amount 100000 TDS Amount 10000 (100000*10%) On posting invoice, GL Entries will be as following:
Particulars Amount Expense Account 112360 TDS Payable Account -10000 Vendor Account -102360
TDS calculation on multiple expenses in a single invoice
A single invoice can be raised by the vendor for multiple expenses. For example, vendor issued a single invoice for INR 100000; INR 50000 each towards two services under TDS Section 194C and 194J.
In this case TDS calculation will be as following:
Component Value TDS Base Amount 100000 TDS percent for 194C 1000 (50,000x2%) TDS percent for 194J 5000 (50,000x10%) On posting invoice, GL Entries will be as following:
Particulars Amount Expense Account (194C) 50000 Expense Account (194J) 50000 TDS Payable Account (194C) -1000 TDS Payable Account (194J) -5000 Vendor Account -94000
TDS on expenses at lower rate or zero rate
If a vendor has a certificate of concessional rate instead of normal rate then to handle that scenario, concessional codes can be configured and attached to those vendors.
In the given scenario, vendor issued an invoice for INR 100000 towards professional services. Vendor has a certificate of income tax at Lower rate @ 5% on professional services instead of normal rate.
In this case TDS calculation will be as following:
Component Value TDS Base Amount 100000 TDS Amount 5000 (100000*5%) On posting invoice, GL Entries will be as following:
Particulars Amount Expense Account 100000 TDS Payable Account -5000 Vendor Account -95000
In this scenario, vendor issued an invoice for INR 100000 towards professional services. vendor has a certificate of income tax at Zero rate @ 0% on professional services instead of normal rate.
In this case TDS calculation will be as following:
Component Value TDS Base Amount 100000 TDS Amount 0 (100000*0%) On posting invoice, GL Entries will be as following:
Particulars Amount Expense Account 100000 Vendor Account -100000
Note
Concession Code must be selected on vendor master for lower or zero rated TDS transactions.