Withholding tax is a tax deducted at the beginning of payment flow. Amount withheld paid and reported to the tax authority on behalf of the person who is subject to tax. Two type of withholding tax
1. Classical Withholding tax
2. Extended withholding tax
Here we will see extended withholding tax setting.
Configuration by table maintenance, Tcode SM30 >>> Enter table name >>>> click maintain.
Step-1 Check Withholding Tax Countries (V_T005Q)
Withholding tax country is needed to maintain relevant tax code party master record and also print the withholding tax form.
C........W.........Description
IN........IN.........India
Step -2 Define Withholding Tax Keys (V_T059O)
The withholding tax keys correspond to the withholding tax laws according to which tax is withheld. The system can therefore assign the withholding tax items to the correct withholding tax return
Enter country key – IN
New Entry –
Step -3 Define Reasons for Exemption (V_T059V)
you define reasons for exemption from withholding tax. You can enter this indicator in the vendor master record or in the company code withholding tax master record information.
Enter country key – IN
New Entry –
Exempted reason | Text |
SA | Exampted |
Setp -4 Define Sect.code (J_1I_SECCODE)
Business places are the location where tax is deducted.
New Entry -
Cocd |
| Name1 |
AR01 | ND | New Delhi off |
Setp 5 Define Business palce (J_1BBRANCV)
Business places are the location where tax is deducted .i.e location from where business of the company is carried out. Business place may head office, branch office, regional office etc which may have separate TAN. When post transaction business place must be enter, toensure that transaction is assigned to correct tax entity
And activate business place for country India (VIDBUPLA_ACTIVE)
C.......BP active
IN......chk
Withholding tax type used to classify different type of withholding tax in a country. Withholding type controls the essential calculation options. Two type of tax
1. Withholding tax type for invoice posting
2. Withholding tax type for payment posting
Step – 6 Define Withholding Tax Type for Invoice Posting (V_T059PI)
Tax type controls the essential calculation options. The withholding tax type must enter in the customer/vendor withholding tax master data. The withholding tax type for entering a invoice and for posting of payment.
Country key – IN
Step – 7 Define Withholding Tax Type for Payment Posting (V_T059PP)
Country key – IN
Save
Step 8 Check Recipient Types (V_T059C)
This is required to categorize the vendors. i.e company or non-company
Enter country key – IN
New Entry –
Wth,t,type |
| Text |
IC | Co | Company |
IC | NC | No-Company |
Step-9 Define Withholding Tax Codes (V_T059Z)
The withholding tax code only controls the percentage rate of the withholding tax.
Country key – IN
New Entry
Step-10 Assign Withholding Tax Types to Company Codes (V_T001WT)
By assign tax type to company code, by doing this, the tax type can be used for the specific company only.
Step -11 Activate Extended Withholding Tax (V_T001_EXT)
go to cocd Ext.w/tax ....chk
Step -12 Define Accounts for Withholding Tax to be Paid Over (T code - OBWW)
Here we defined GL accounts to which the system will post tax amount.
Enter Chart of accounts –
Click Rule-
Select Debit/Credit
Click Account- Enter relevant account
Step -13 Maintain Number group (J_1IEWTNUMGR_N)
set up the numbering for the remittance challans. In this activity, you group together the permutations of company code, business place, and official withholding tax key that you want to remit withholding tax for.
C |
| Off, w/tax | Number |
AR01 | ND | 194C | 19 |
Step -14 Assign number range (J_1IEWTNUM)
Number........in
10................03
Step -15 Maintain Number Range (T code - J1INUMBER)
press F6----------- (select group) -------- Shift+F5 ---------------- Wnter cocd ------ year ----- from number --------to number
Step -16 Same steps repeats for Withholding Tax certificate For vendors and customers (above three steps) in following three areas.
J_1IEWT_CERT_N,
J_1IEWT_CERTNO,
T code - J1INCT
Steps -17 Maintain company code setting (J_1IINDCUS)
Step -18 check party master record in company code “withholding tax accounting”. (FK01/FK02/FK03) This field should filled accordingly.
In vendor master record, assign tax type, tax code and recipient type to the master record. Which will be used to deduct tax during transaction postings.
Wth t | w/tax | Liable | Rec |
IC | CI | Chk | co |
Enter a vendor invoice FB60
Additional Seting
Defining Withholding Tax Type for ECESS at Invoice/payment Posting This tax type is used for calculating Education Cess on tax and posting the tax amount at the time of creating invoice/payment. The configuration is similar to the previous section except that the field – Inherit base should be checked. Then define dependencies between withholding tax categories.
Tax due date can be maintain in table J_1IEWTDUEDATE: In India withholding tax due date is 7th of next month. Enter 777 for the due date
Defining Withholding Tax Type for ECESS at Invoice/payment Posting this tax type is used for calculating Education Cess on tax and posting the tax amount at the time of creating invoice/payment. The configuration is similar to the previous section except the field – Inherit base should be checked i.e for cess tax type setting select "Inherit base". Then define dependencies between withholding tax categories.
In India there is some thrash hold for deduction, exemption limit upto certain amount at specified rate within time frame. There is no such setting in current SAP system. Refer note 1415026. But we can manage to some extend in SAP.
Case 1
In a fiscal year
Upto 30000 at 2%
More than 30000 at 10%
For this we use formula. In tax code don’t put any percentage, select “W tax form.” and in tax type select accumulation type. And maintain formula for the tax type and tax code.
Case -2
Tax will be deducted for limited period at lower rate. For this you may enter vendor master record, valid period for the tax type.
Special Transactions
- Down payment requests and payment requests
When you post down payment requests and payment requests, the system only calculates the withholding tax base amounts.
- Document parking
The system does not calculate any withholding tax base amounts when you save or change parked documents, only when they are posted.
- Document holding
When documents are held, the system does not calculate any withholding tax amounts/base amounts.
- Posting with reference
When you post documents using a reference, the system defaults withholding tax base amounts, but not any existing withholding tax amounts. The system does not calculate any withholding tax base amounts/tax amounts when you enter a reference document
.
- Recurring entry documents
The system does not calculate any withholding tax base amounts/tax amounts when you enter a recurring entry document.
Summary
The basic withholding tax settings for India (Country India Version) will include the following sub processes which are commonly used within the main process.
Defining withholding tax keys
Defining branch offices (Section codes)
Defining withholding tax type invoice & payment posting
Defining withholding tax type for ECESS at Invoice posting
Maintaining surcharges
Defining withholding tax codes
Defining GL accounts to post the withholding tax
Maintenance of number ranges for tax certificates and Challan
1. Withholding Tax Countries The withholding tax country is needed for printing the withholding tax form.
2. Withholding Tax Keys to identify the different withholding tax types. you can define these official names for your tax codes here i.e 194C, 194J 192 etc. The official withholding tax key will assign to relevant withholding tax code.
3. Recipient Types The type of recipient categorizes the vendor i.e company/non-company
4. Business Places/section code Create a business place for each (TAN), which is responsible to deduct tax and report to tax authority accordingly. A system object that represents the organizational unit responsible for collecting and remitting withholding tax, as identified by a TAN. When you post a document with a withholding tax item, enter the section code in order to make sure that the tax item is assigned to the correct TAN.
5. Withholding Tax Type The withholding tax type governs the way in which extended withholding tax is calculated and is defined at country level. There two type of withholding tax type, withholding tax types for calculating tax at invoice posting and another one for calculating tax at payment posting. You must enter the withholding tax type in the customer/vendor withholding tax master data .
6. Withholding Tax Code The withholding tax code determines the withholding tax percentage and tax base. You make the settings for each country and withholding tax type. You can therefore define as many withholding tax codes as required for each withholding tax type.
7. Posting Define account determination for the tax.
8. Assign Withholding Tax Types to Company Code. Now specific company code can deduct tax from business partner against specific tax type for specified period.
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