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Financial Accounting Configuration Manual

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1 INTRODUCTION......................................................................................................................................................2 1.1 OVERVIEW ...........................................................................................................................................................2 2 CONFIGURATION DETAILS OF EXTENDED WITHHOLDING TAX ........................................................2 2.1 2.2 2.3 2.4 BASIC SETTINGS...................................................................................................................................................2 CALCULATION .................................................................................................................................8 COMPANY CODE.................................................................................................................................................18 POSTINGS............................................................................................................................................................20

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Introduction Overview
This document covers the configuration details for Extended Withholding Tax (EWT) which is commonly understood as Tax Deduction at Source (TDS) in India. The system settings required for EWT are maintained here.

Activate extended withholding tax functionality.

2 2.1

Configuration Details of Extended Withholding Tax Basic Settings

2.1.1 Check Withholding Tax Countries


Menu Path via IMG Financial Accounting-Financial Accounting Basic Settings Withholding Tax--Extended Withholding TaxBasic SettingsCheck Withholding Tax Countries

Table Transaction Details of the configuration

No configuration

Withholding Tax refers to tax deducted at source. In this step, a country needs to be defined to enable further settings for TDS to be done. Current System Settings

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2.1.2 Define official withholding tax codes


Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxBasic Settings Define Official Withholding Tax Keys Section codes for various sections of Income Tax Act for TDS were created.

Table Details of the configuration

In this step, keys need to be defined for each section under the IT Act. These keys are in a later step attached to Tax Types.

Current System Settings

2.1.3

Define reasons for exemption


IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxBasic Settings Define Reasons for Exemption

Menu Path Table Transaction Details of the configuration

No configuration

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In this activity, reasons for exemption from withholding tax have to be defined, for country IN. These indicators can be entered in the vendor master record or in the company code withholding tax master record information. These will be entered as and when needed.

2.1.4 Check Recipient Types


Menu Path Table Transaction Details of the configuration IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxBasic Settings Check Recipient Types

No configuration

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2.1.5 Check Income Types


No configuration done

2.1.6 Change Message Control for Withholding Tax


Menu Path Details of the configuration IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxBasic Settings Change Message Control for Withholding Tax Message control has been configured for vendors and customers as shown below

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Menu Path Details of the configuration

IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxBasic Settings India Define Tax code Message control has been configured for vendors and customers as shown below

2.2

Calculation

2.2.1 Withholding Tax Type 2.2.1.1 Define Withholding Tax Type for Invoice Posting/payment posting
Menu Path IMG Financial Accounting-Financial Accounting Basic SettingWithholding Tax--Extended Withholding TaxCalculation Withholding Tax Type-Define Withholding Tax Type for Invoice Posting

Table Transaction Details of the configuration

E.g.: Sec 194C W1: Sec 194C for Contractor Invoice W2: Sec 194C for Contractor Surcharge Invoice WA: Sec 194C for Contractor Payment WB: Sec 194C Contractor Surcharge Payment E1: Sec 194C Educt. Cess Cont Invoice E2: Sec 194C Educt. Cess Cont. Inv. Surcharge EA: Sec 194C Educt. Cess Cont. Payment EB : Sec 194C Educt Cess Cont. Pay(Surch)

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Menu Path

IMG Financial Accounting-Financial Accounting Basic SettingWithholding Tax--Extended Withholding TaxCalculation Withholding Tax Type-Define Withholding Tax Type for Payment Posting

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Financial Accounting Configuration Manual Note: Following indicators must always be switched on: Post w/tax amount - TDS deduction is activated only if this indicator is set W/tax base manual - allows changing base amount Manual w/tax amount - allows changing TDS amount

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Additionally, the checkbox Liable in the vendor master and W/tax in the customer master must also be switched on. In this activity, tax types applicable at the time of posting of payments to vendors need to be defined. These Tax Types too must be stored in the vendor or customer master, which are subject to TDS deductions. These Tax Types are specially meant for deduction of TDS at the time of payment of advance to vendors. However, it may be noted that if corresponding Tax Codes (refer later chapter), for these Tax Types, are entered at the time of invoice postings (along with corresponding Tax Codes for Tax Types for invoice posting), TDS will be deducted both at the time of posting invoice and outgoing payment!!! Hence, it is advised that while Tax Types both for invoice posting and payment posting may be stored in the vendor master, corresponding Tax Code must be stored only for invoice posting. While making a down payment to the vendor, the Tax Code for payment posting will obviously appear blank, and needs to be removed at that point.

2.2.1.2 Define Exchange Rate Type for Withholding Tax Type


Menu Path Details of the configuration IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxCalculation Withholding Tax Type-Define Exchange Rate Type for Withholding Tax Type No configuration done

2.2.1.3 Define Rounding Rule for Withholding Tax Type


Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxCalculation Withholding Tax Type-Define Rounding Rule for Withholding Tax Type As given below

Details of the configuration

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2.2.1.4 Assign Condition Type to Withholding Tax Type


No configuration done

2.2.2 Withholding Tax Codes 2.2.2.1 Define withholding tax codes


In this step, Tax Codes need to be specified. These codes are attached to Tax Types in the vendor and the customer masters. The codes contain the rates of tax, which includes the surcharge element (e.g. if tax rate is 10.00% and surcharge is 10%, the rate to be specified in the field With/tax rate is 11%).

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Financial Accounting Configuration Manual Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxCalculation Withholding Tax Codes- Define Withholding Tax Codes Configuration done is as tabulated below

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Details of the configuration

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2.2.2.2 Define Formulas for Calculating Withholding Tax


Menu Path Details of the configuration IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxCalculation Withholding Tax Codes- Define Formulas for Withholding Tax No configuration done

2.2.3 Withholding Tax Base Amount 2.2.3.1 Define Processing Key for Modified Net Amount (No Configuration)
No configuration was carried out

2.2.3.2 Define Processing Key for Modified Tax Amount (No Configuration)

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Financial Accounting Configuration Manual No configuration was carried out

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2.2.3.3 Portray Dependencies between Withholding Tax Types (No Configuration)


No configuration was carried out

2.2.4 Minimum and Maximum Amounts 2.2.4.1 Define Min/Max Amounts for Withholding Tax Types
Certain IT sections specify that no TDS should be deducted if the total invoices posted for the vendor do not exceed a base amount In this step, the minimum base amount must be specified. It may be noted that the accumulation (of invoices per year) is set in the Withholding Tax Type ( indicator under heading Accumulation Type). Configuration done is as tabulated below

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2.2.4.2 Define Min/Max Amounts for Withholding Tax Codes


No configuration done.

2.3

Company Code

2.3.1 Assign Withholding Tax Types to Company Codes


Menu Path Details of the configuration IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding Tax Company Code Assign Withholding Tax Types to Company Codes Details are as under

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In the above activity, the following specifications must be made for each Tax Type: Indicators With/tax agent and Subject to w/tx must be clicked to activate deduction of TDS on vendors and customers, respectively. Validity period must be specified for each Tax Type, under the vendor data. As regard customers, the validity period is specified in the customer master itself. In the field W/tax number, the TAN numbers for each section have been stored. Configuration done is as tabulated below

2.3.2 Activate Extended Withholding Tax


Menu Path Details of the configuration IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding Tax Company Code Activate Extended Withholding Tax Extended Withholding Tax has been activated for Company ABCL

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2.4

Postings

2.4.1 Define Accounts for Withholding Tax 2.4.1.1 Define accounts for withholding tax to be paid over
In this step, G/L account determination is done for each Tax Type, for Chart of Accounts ABCL SAP standard process WIT. The rules for the process key have been configured for account determination to be done at the level of the tax type. Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding TaxPostings Accounts for Withholding Tax-Define Accounts for Withholding Tax to be Paid Over Details are as under

Details of the configuration

2.4.1.2 Define accounts for Grossing up entry (No Configuration)


No configuration done

2.4.1.3 Define Accounts for Self-Withholding Tax (No Configuration)


No configuration done

2.4.1.4 Define Accounts for Withholding Tax Offsetting Entry (No Configuration)
No configuration done

2.4.2 Remittance Challan


In this activity we configure settings related to EWT remittance challan.

2.4.2.1 Document Types


Specify document Type for Account Payable/ Account Receivable. Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding Tax Postings India Remittance Challan Specify document type Document Type for tax withheld from Account Payable/ Account Receivable is defined.

Details of the configuration

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Financial Accounting Configuration Manual The following settings are made:-

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2.4.2.2 Numbering of Remittance Challan


In this set of activities we configure the numbering of challan for remittance of EWT.

2.4.2.2.1 Maintain Number Groups


Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding Tax Postings India Remittance Challan Maintain Number Groups Various number groups depending on the Official withholding Tax Codes are created.

Details of the configuration

2.4.2.2.2 Assign Number Ranges to Number Groups


Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding Tax Postings India Remittance Challan Assign Number Ranges to Number Groups Number ranges are assigned to each number group.

Details of the

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2.4.2.2.3 Maintain Number Ranges


Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding Tax Postings India Remittance Challan Maintain Number Ranges Number ranges are maintained

Details of the configuration

The configuration details for Number Ranges are as follows:-

From the above screen press Maintain Groups button

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We can select one by one each group and maintain number ranges for that group. Please note that the number ranges are maintained on yearly basis. The following Number Ranges are maintained for ABCL.

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2.4.3 Numbering of EWT Certificates


In this step we configure system settings for automatic numbering of EWT certificates.

2.4.3.1 Maintain Number Groups


Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding Tax Postings India Withholding Tax Certificates for Vendors and Customers Maintain Number Groups Various number groups depending on the Official withholding Tax Codes are created.

Details of the configuration

2.4.3.2 Assign Number Ranges to Number Groups


Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding Tax Postings India

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Details of the configuration

Withholding Tax Certificates for Vendors and Customers Assign Number Ranges to Number Groups Number ranges are assigned to each number group.

2.4.3.3 Maintain Number Ranges


Menu Path IMG Financial Accounting-Financial Accounting Basic Setting Withholding Tax--Extended Withholding Tax Postings India Withholding Tax Certificates for Vendors and Customers Maintain Number Ranges Number ranges are maintained

Details of the configuration

The configuration details for Number Ranges are as follows:-

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From the above screen press Maintain Groupsbutton

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We can select one by one each group and maintain number ranges for that group. Please note that the number ranges are maintained on yearly basis. The following Number Ranges are maintained for ABCL

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TABLE MANUAL UPDATE

J_1IEWTNUMGR J_1IEWTNUMGR_1 J_1IEWTCALID_N J_1IEWT_CERT_N J_1I_SECCODE

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