TDS in Accounts Payable - India Localization

TDS in Accounts Payable - India Localization


Organizations are expected to withhold a percentage of the payments that they make to their suppliers and remit the amount thus collected with the tax authorities at the end of every specified period. This process is known as Withholding Tax or Tax Deducted at source.The suppliers in turn receive a certificate to the extent of the amounts thus remitted and they will file the same with the Tax Authorities as a part of their Income tax declaration.While withholding tax calculation in majority of countries is effective at the time of making payments to the suppliers, in India the Tax Deducted at Source (TDS) is effective at the time of accepting the supplier invoice itself. This makes the tax calculation, managemet and tracking much more complicated especially in an ERP Scenario.
1. When prepayment invoice is generated in AP.
In Oracle Apps, you enter a Supplier Prepayment as a Supplier Invoice of type 'Prepayment'. In this example, we are entering a prepayment of Rs.55000. Accounting entry generated is as follows.
Prepaid Expenses Dr 55000
Liability Cr 550002.


2. System Creates TDS Credit Memo on supplier (Assuming 10% is the rate)
At the time of validating the above invoice, the system creates two additional documents. One, it creates a credit memo on the supplier (discussed in this step)
and two, it creates a TDS invoice on the Tax Authority, thus moving the Tax from the supplier to the Tax Authority (discussed in step 3 below).
For this purpose, Tax Authority has to be created as a Supplier in the ERP systemIn this example, TDS rate of 10% is assumed.
Liability Dr 5500
TDS Control A/c Cr 5500
The rate gets picked up from the tax master where we have defined the tax as type 'Tax Deducted at Source'.

3. System Creates TDS Invoice on IT Authority (TDS Supplier)This is already discussed above.
TDS Control A/c Dr 5500
Liability Cr 5500

4. Making the payment to the supplier on the prepayment invoice created above.You will net off both the prepayment invoice (step 1) and the credit memo (step 2) when making the payment to the supplier.
Liability Dr 49500
Cash/Cash Clearing Cr 49500


5.Making the payment to the tax authority on the TDS Invoice
Liability Dr 5500
Cash/Cash Clearing Cr 5500


6.Enter Standard Invoice on Supplier (Raising invoice of 40000)Here we are entering a standard invoice on the supplier and netting it off with the prepayment created above. The invoice amount is Rs. 40000. At the time of validating this invoice, the system will create TDS Credit Memo and TDS Invoice as discussed previously (Steps 2 and 3).Accounting entry for the invoice.
Expense Dr 40000
Liability Cr 40000


7. TDS Credit Memo on the above invoice
Liability Dr 4000
TDS Control A/c Cr 4000

8.TDS invoice on IT Authority
TDS Control A/c Dr 4000
Liability Cr 4000

9.Attaching Prepayment created above to the current invoice.
Liability Dr 40000
Prepaid Expenses Cr 40000

10.TDS Return Invoice on supplier to reverse the original TDS Credit memo on the Prepayment.This is a bit complicated to explain. If you make payment to the tax authority on this TDS invoice (created in Step 8), you would have made a total payment of 5500+4000 to the tax authority. This is wrong. Actually you don't have to pay anything on this invoice since you have already paid the TDS on the prepayment. To reverse the TDS Credit memo and the TDS Invoice created above (in step 7 and 8), the system creates a Reversal Invoice on the supplier and a Credit memo on the tax authority to the extent of Rs.4000TDS Control A/c Dr 4000Liability Cr 400011.TDS Return Credit Memo on IT Authority to reverse the Original TDS Invoice on the PrepaymentLiability Dr 4000TDS Control A/c Cr 4000Note that TDS Control A/c is an intermediate account which gets netted off at the end of a TDS Credit Memo and a TDS Invoice. This account is set up when you set up the tax master

Post a Comment