TDS – Tax rate rules

Setting Up Tax Deduction at Source Tax Rate Rules
The Tax Deduction at Source (TDS) tax rate rules are used to calculate tax on bill transactions. On the transaction record, a section code is assigned to each line item. The section code determines the TDS tax rate rule to apply to the transaction for tax calculation.
There are five tax rate rules available for TDS calculation:
■ Tax Deduction at Source
■ Education Cess
■ Secondary Education Cess
■ Surcharge
■ Vendor Exemption

Tax Deduction at Source tax rate rule
The Tax Deduction at Source tax rate rule is used to calculate basic TDS on transactions. All tax rules under TDS use the default TDS tax type and tax codes sourced from the India Localization SuiteTax Engine SuiteApp.

When creating a tax rate rule under TDS, consider the following scenarios:
■ Create tax rate rules for each section code in different date ranges.
■ Create tax rate rules for each vendor type.
■ Create tax rate rules for resident vendors that do not have a Permanent Account Number (PAN) for the section code.

To enter a tax deduction at source tax rate rule:

• Go to Setup > India Localization > TDS Tax Rate Rules.
• Click Tax Deduction at Source subtab.
• Click New Tax Deduction at Source.
• Enter a unique name for the Tax Deduction at Source rule.
• In the Section Code field, select the section code this rule will apply to.
• In the Vendor Type field, select which type of vendor this rule will apply to.
• Enter effective period for this rule in the Effective From and Valid Until fields.
• Enter the appropriate tax rate for this rule. This percentage will be calculated when we select the section code on transactions.
• In the Threshold Basis column, set the level threshold for this tax rule if the section code in step 5 has threshold basis.
  • Year – Tax will be calculated if the aggregated transactions reach the set threshold amount per year. If the threshold limit is not reached, the Document level will be followed.
    • Threshold Amount – Enter the threshold amount limit per year.
    • Retrospective – This box is enabled by default for Year level threshold. If we have both Year and Document levels for the same rule, we cannot set the level to non-retrospective.
      If this box is checked, it will calculate tax on transactions entered before reaching the threshold and tax amount will be added to the latest transaction.
  • Document – Tax will be calculated if the total transaction amount reach the set threshold amount.
    • Threshold Amount – Enter the threshold amount limit per transaction.
• Click Save.

Education Cess
The Education Cess tax rule is used to calculate the education cess tax imposed by the government for the development of education in India. All tax rules under Education Cess use the default Education Cess tax type and tax codes sourced from the India Localization SuiteTax Engine SuiteApp.
We must create an Education Cess tax rate rule in different date ranges.

To enter an education cess tax rate rule:

• Go to Setup > India Localization > TDS Tax Rate Rules.
• Click the Education Cess subtab.
• Click New Education Cess.
• In the Rate field, enter the appropriate tax rate for this rule.
• Enter effective period for this rule in the Effective From and Valid Until fields.
• Check the Non-Resident Indian box if this rule applies to non-resident payments.
• Click Save.

Secondary Education Cess
The Secondary Education Cess tax rule is used to calculate the secondary education cess tax imposed by the government for the development of higher education in India. All tax rules under Secondary Education Cess use the default Secondary Education Cess tax type and tax codes sourced from the India Localization SuiteTax Engine SuiteApp.
We must create a Secondary Education Cess tax rate rule in different date ranges.

To enter a secondary education cess tax rate rule:

• Go to Setup > India Localization > TDS Tax Rate Rules.
• Click the Secondary Education Cess subtab.
• Click New Secondary Education Cess.
• In the Rate field, enter the appropriate tax rate for this rule.
• Enter effective period for this rule in the Effective From and Valid Until fields.
• Check the Non-Resident Indian box if this rule applies to non-resident payments.
• Click Save.

Surcharge
The Surcharge tax rule is used to calculate additional charges or tax. All tax rules under Surcharge use the default Surcharge tax type and tax codes sourced from the India Localization Tax SuiteTax Engine SuiteApp.
When creating a tax rule under Surcharge, consider the following scenarios:
■ Create tax rate rules if the tax rate varies in different periods or amount ranges.
■ Create tax rate rules that will calculate retrospective surcharge during the year.

To enter a surcharge tax rate rule:

• Go to Setup > India Localization >TDS Tax Rate Rules.
• Click the Surcharge subtab.
• Click New Surcharge.
• In the Rate field, enter the appropriate tax rate for this rule.
• Enter the amount range for this rule by setting the From Amount and To Amount fields.
• Check the Non-Resident Indian box if this rule applies to non-resident payments.
• Click Save.

Vendor Exemption
The Vendor Exemption tax rate rule is used to calculate the tax exemption for a vendor on the basis of their Certificate Number. All tax rules under Vendor Exemption use the default Vendor Exemption tax type and tax codes sourced from the India Localization SuiteTax Engine SuiteApp.

To enter vendor exemption tax rate rule:

• Go to Setup > India Localization > TDS Tax Rate Rules.
• Click New Vendor Exemption.
• In the Vendor Name field, select the vendor for this tax rule.
• In the Section Code field, select the section code this rule will apply to.
• In the Particulars field, select the reason for non-deduction or lower deduction for this tax rule.
• In the Certificate Number field, enter the TDS certificate number of the selected vendor.
• In the Schedule Type field, select the schedule type for this rule:
  • Amount Based – Enter the amount range for different tax rates during the valid date range.
  • Period Ranges – Enter the date range for different tax rates.
• Enter the effective period for this rule in the Effective From and Valid Until fields.
• Check the Retrospective box to use the rule to calculate tax retrospectively.
• Under the Amount Rate Schedule subtab, enter the following:
  • In the From Amount and To Amount fields, enter the amount range for this rule.
  • In the Rate field, enter the appropriate tax rate for this rule.
• Click Save