Introduction:
The Lower Deduction Certificate (LDC) is issued by the Income Tax Department under Section 197 of the Income Tax Act, 1961, allowing taxpayers to receive payments with TDS (Tax Deducted at Source) at a lower rate or NIL rate based on approval from the Assessing Officer. This mechanism is particularly relevant for businesses with lower taxable income, high carried-forward losses, or exemptions.
Legal and Compliance requirements
- Applied via Form 13 and issued for a specific financial year
- Applicable for various TDS sections such as: Section 194C (Contract payments), Section 194J (Professional services), Section 194I (Rent), etc.
- Deductor must verify the certificate (TRACES) and apply the prescribed rate.
- Non-compliance may lead to interest and penalties.
Configuration Steps
LDC Configuration as per below LDC certificate shared received by Vendor to deduct TDS at lower rate:
- Create new or use existing withholding tax component group
2. Create new or use existing withholding tax component
3. Create new withholding tax code or use existing one. And enable the "Enable threshold heirarchy" then go to Threshold reference
4. Create two threshold definition one for LDC cases i.e 194J and another for non LDC cases where general 194J is applicable i.e 194J_O
5. Then go to threshold designer and define the range wise period wise LDC rate for 194J threshold definition:
Similarly, Define 194J_O threshold definition:
This is for Other vendors other than LDC cases under 194J section. This will be configured for PAN status received and not available both
6. Update the withholding tax concession certificate detail. The details of the concession certificate can be seen in posted withholding tax report after TDS settlement.
6.1 In withholding tax concessions, details of all the vendors with LDC can be maintained under specific section like for 194J, 194C and 194I etc.
7. Then map the vendor with LDC cases and other threshold for other than LDC vendor
8. Mapping of LDC withholding tax group on LDC vendor master
Testing Scenarios
All setup is done, Now perform the testing weather it is calculating TDS as expected or not
- Create vendor invoice journal with the same LDC vendor and check the withholding tax it should calculate as per the LDC configuration as per the threshold definition 194J
- With the LDC vendor if vendor invoice exceed the threshold amount and within the date range (4/1/2025 - 3/31/2026) it will calculate tax as per the range configured (13,181,000,000.00 - MAX)
- With the LDC vendor if vendor invoice exceed the date range (4/1/2025 - 3/31/2026) it will calculate tax as per the range configured (0 - 999,999,999,999.00 ; 4/1/2026 - 3/31/2063)
2. For other vendor (Non-LDC) with same withholding tax group (194J) it should calculate as per the threshold definition 194J_O configuration which is nothing but a General 194J TDS case.
Thank You!
Happy Learning 😊
