Overview

TDS and TCS are key for tax compliance. iVendNext handles them with Tax Withholding Categories, automating calculation, deduction, and deposit. This guide explains how to set them up for smooth, compliant tax handling.

1. What are TDS and TCS?

1.1 Tax Deducted at Source (TDS)

TDS is a tax collection mechanism where the payer deducts a certain percentage of tax before making a payment to the payee. This tax is then deposited with the government. TDS is commonly applied to payments such as salaries, professional fees, and contractor payments.

1.2 Tax Collected at Source (TCS)

TCS is a tax collection mechanism where the seller collects a certain percentage of tax from the buyer at the time of sale. This tax is then deposited with the government. TCS is commonly applied to the sale of goods such as scrap, minerals, and luxury items.

2. What is a Tax Withholding Category?

A Tax Withholding Category in iVendNext is a configuration that defines the rules for deducting or collecting taxes at the source. It includes details such as the tax rate, threshold limits, and the account to which the tax will be credited. Tax Withholding Categories can be applied to both TDS and TCS scenarios.

3. Setting Up a Tax Withholding Category

3.1 Prerequisites

Before creating a Tax Withholding Category, ensure that:

• The Supplier or Customer master has been created in the system.

• The appropriate Chart of Accounts has been configured for TDS/TCS.

3.2 Steps to Create a Tax Withholding Category

1. Navigate to the Tax Withholding Category List:

• Go to Home > Accounting > Taxes > Tax Withholding Category.

2. Create a New Category:

• Click on New to create a new Tax Withholding Category.

3. Configure the Category:

• Name: Enter a unique name for the category (e.g., "TDS - 194C - Individual").

• Category Name: Enter a descriptive name (e.g., "Professional Fees").

• Tax Withholding Rate: Enter the tax rate (e.g., 1%).

• Thresholds: Set the single invoice threshold and cumulative threshold (e.g., Single: 30,000, Cumulative: 1,00,000).

• Account: Select the account to which the tax will be credited.

4. Save the Category:

• Click Save to save the category.

3.3 Assigning the Tax Withholding Category to Suppliers or Customers

Once the Tax Withholding Category is created, it can be assigned to suppliers (for TDS) or customers (for TCS).

1. Navigate to the Supplier or Customer Master:

• Go to Home > Buying > Supplier or Home > Selling > Customer.

2. Select the Supplier or Customer:

• Choose the supplier or customer to whom the Tax Withholding Category will be applied.

3. Assign the Category:

• In the Tax Withholding section, select the Tax Withholding Category you created.

• Save the changes.

4. How Tax Withholding Works in Transactions

4.1 TDS in Purchase Invoices

When a Purchase Invoice is created for a supplier with a Tax Withholding Category, iVendNext automatically calculates and deducts the TDS based on the predefined rules.

Example:

• A supplier has a Tax Withholding Category with a 1% TDS rate and a single invoice threshold of 30,000.

• If a Purchase Invoice is created for $ 40,000, iVendNext will deduct 1% (400) as TDS.

4.2 TCS in Sales Invoices

When a Sales Invoice is created for a customer with a Tax Withholding Category, iVendNext automatically calculates and collects the TCS based on the predefined rules.

Example:

• A customer has a Tax Withholding Category with a 0.075% TCS rate and a cumulative threshold of 50 Lakhs.

• If a Sales Invoice is created for 60 Lakhs, iVendNext will collect 0.075% (4,500) as TCS.

5. Advanced Features of Tax Withholding Categories

5.1 Thresholds

Tax Withholding Categories allow you to set both single invoice and cumulative thresholds. Taxes are only deducted or collected when these thresholds are crossed.

Example:

• Single Threshold: 30,000

• Cumulative Threshold: 1,00,000

• If an invoice is created for $ 20,000, no tax is deducted. If another invoice is created for 80,000, the cumulative total (1,00,000) triggers the tax deduction.

5.2 Validity Periods

Tax Withholding Categories can have validity periods, allowing businesses to set temporary tax rates for specific periods.

5.3 Rounding Off

You can enable rounding off for the calculated tax amount, ensuring that the tax is rounded to the nearest integer.

6. Important Points To Remember

Some of the key points to remember are:

• Regular Updates: Regularly review and update Tax Withholding Categories to ensure compliance with changing tax regulations.

• Clear Documentation: Maintain clear documentation of all Tax Withholding Categories for easy reference and auditing.

• Testing: Test Tax Withholding Categories in a controlled environment before applying them to live transactions.

• Training: Train your accounting team on how to use Tax Withholding Categories effectively.