Tax Deducted at Source (TDS) is one of the modes of collecting income tax from the Assessee. Such collection of tax is effected at the source when income arises or accrues. Hence, where any specified type of income arises or accrues to any one, the Income-Tax Act enjoins on the payer of such income to deduct a stipulated percentage of such income by way of income tax and pay only the balance amount to the recipient of such income.

The tax so deducted at source by the payer has to be deposited in the Government Treasury to the credit of Central Government within the specified time. The tax so deducted from the income of the recipient is deemed payment of income tax by the recipient at the time of his assessment.

Justification

Section 4(2) of the Indian Income Tax Act 1961, specifies that income will be chargeable to tax at source or should be paid in advance where it is so deductible or payable under any provisions of the Act at the rates applicable for the relevant year.

Chapter XVII of the Indian Income Tax Act 1961 covers the entire scope and method of TDS. The taxable payments are specified from section 192 to section 206.

The Deduction groups, which are considered taxable and are mentioned below:

Section 193–Interest on Securities
Section 194–Dividend (already covered)
Section 194A–Interest
Section 194B–Lotteries or Puzzles
Section 194BB– Winnings from horse race
Section 194C–Contractor (already covered)
Section 194D–Insurance commission
Section 194EE–Deposit under National Saving Scheme
Section 194F–Mutual fund or UTI
Section 194G–Commission, Remuneration, and Prize
Section 194H–Commission or Brokerage (already covered)
Section 194I–Rent (already covered)
Section 194J–Professional (already covered)
Section 194K–Income from units
Section 194L– Compensation on Acquisition of Capital Assets

Payment to non-resident on which the TDS is applicable is mentioned below

Section 194E– Sportsman or Sports Association
Section 195– Dividend/Interest/Royalty or fees paid for technical services
Section 196A– Income of Mutual funds
Section 196B– Units
Section 196C–Foreign currency bonds
Section 196D– Foreign Institutional Investors from securities

Who Can Deduct Tax

Section 204 of the Income Tax Act clearly specifies in all the above cases as to who is responsible for paying tax. For example: in case of Professional Service, the organization taking the services is supposed to deduct the tax, when making the payment or creating the invoice, and pay it to government authority

Observance of Payment or Credit whichever is earlier

The Income Tax Act specifies that tax deduction has to happen on crediting a person‟s account or on payment, whichever is earlier.

Create Purchase Invoice with TDS

Search Purchase invoice in the Search bar

Click on New button

Enter below details in the Purchase Invoice Header

General Tab

Select Vendor Name, Enter Posting Date, Enter Vendor Invoice No.

Shipping & Payment Tab Select Location Code

Go to the Purchase Line

In the Type field select G/L Account

In the No. field select G/L Account No. (Professional Charges)

Quantity- enter 1

Direct Unit Cost – enter 50,000

TDS Section code – select TDS Section code 194JF

Click on Statistic & check TDS & GST Values

System calculated TDS

Click on Posting à Preview Posting and check all accounting effects

Click on G/L Entry

TDS Account is credited with Rs.3750 as it’s a liability.

Click on Posting à Post button to post Purchase Invoice

Invoice is posted and you can check the posted purchase invoice document by click on YES button.

Check Posted Purchase Invoice

Click on Invoice à Find entries and check G/L entries.

Calculate TDS on Advance Bank Payment

Search Bank Payment Voucher in the Search Bar

Select Batch

Enter below details in the Bank Payment Voucher

Posting Date: Payment Date

Document Type: Payment

Document No. : Auto update by system

Account Type: Select Vendor

Account No.: Select Vendor Code

Amount: Enter Amount with positive sign

Bal. Account Type: Select Bank Account

Bal. Account No.: Select Bank Account Code

T.A.N. No. : Select TAN No.

TDS Section: Select TDS Section 194JF

Enter Voucher Narration

Click on Post/Print à Preview Posting and check all Accounting effects

System generated TDS entry

Click on Post/Print à Post to post Bank Payment entry. Click on YES, System will post Payment Entry

TDS Adjustment Journal

We can use TDS Adjustment Journal to reverse TDS Entries. Click on Transaction No., system will open TDS entries page

Select TDS entry and click on OK

System will update entry details in the TDS Adjustment Journal as shown in the below screen.

Enter 0 in the all editable percentage field then click on tab

System update negative TDS Amount in the journal as shown in the below screen

Click on Post button to Post TDS Adjustment Journal.

TDS Payment to Government

Go to Bank Payment Voucher

Enter below details in the Bank Payment Voucher

Posting Date: Enter payment date

Document Type: Select Payment

Document No. : Auto update by system

Account Type: G/L Account

Account No.: Select TDS Payable G/L Account

T.A.N. No.: Select TAN number

Click on Related à Pay TDS à TDS

System will open TDS entries page Click on Pay button

System will auto update TDS Amount in the Bank Payment Voucher

Select Bal. Account Type = Bank Account

Select Bal. Account No. = Bank Account Code

Click on Post/Print à Click on Post System will post the TDS Payment entry

Update TDS Register

Here we can update TDS Challan TDS details.

Search Update TDS Register in the Search bar Click on Action à Update Challan Details

Enter all details and click on OK

System update the challan details in the TDS Register

TDS Challan Register

Search TDS Challan Register

Click on Related à Update Challan Register

Enter details and click on OK

System updated the all details in the Challan Register