Requirement:
TDS is a withholding tax, where tax is deducted by the customer, at the time of making the payment or booking of the invoice, whichever is earlier.
As per the Income Tax Act, 1961, tax needs to be deducted by the payer, when the payment is of a specific nature. If the TDS is deducted by the customer (deductor), then the user (deductee) has to calculate TDS on the invoice or revenue and keep a track of TDS deducted. The deductor has to provide the deductee a TDS certificate.
Setup:
(A) TDS Setup for TDS receivable and TDS Payable:
Go to Tax > Indirect taxes > Withholding tax > Withholding tax codes.
In the Main account field, select the ledger account that the TDS amount should be posted to.
In the Receivable account field, select the receivable account that the TDS amount that is deducted in sales transactions should be posted to.
(B) Mapping of withholding tax group on customer master
Scenarios:
Scenario 1: TDS receivable calculation and posting at the time of posting customer invoice.
This is the case where TDS has been deducted by the customer (Deductor) at the time of booking the invoice. Company need to record the TDS deducted by its customer which is the TDS receivable for the company.
Below is the Journal entry of Customer invoices with TDS:
Scenario 2: If TDS receivable is not deducted on customer invoice then it will be deducted at Customer Payment. Customer has made the payment after deducting TDS.
This is the case where TDS has been deducted by the customer (Deductor) at the time of making advance payment payment since TDS is deducted on invoice or payment whichever is earlier.
Below is the Journal entry after posting customer payment journal with TDS:
Bonus Point:
With the above setup of TDS receivable and TDS payable ledger on Withholding Tax code both the scenario (1. TDS receivable on customer transaction , 2. TDS payable on Vendor transaction) is covered with single withholding tax code setup. It is not required to create two different withholding tax code for a single TDS section for Customer and vendor.
Note: if the rate of TDS is different in both the cases then we need to create two different Withholding Tax code.
Thank You
Happy Learning 😊
