PROJECT SHIELD

BUSINESS BLUEPRINT DOCUMENT

Financial Management

EXTENDED WITHHOLDING TAX (TDS / FBT)

Version: 02

Date: 31 Aug 2007

FIN_GL_BBP_005 Extended Withholding Tax(TDS,FBT) Page 1 of 12

Document Information
Document Name Business Blueprint

Title Financial Management

Document Purpose To account for EWT/FBT requirements

Key Words EWT, FBT

Document Status In Progress

Contact for Enquiries Saikumar

Document Change Control :

Release Description Created Date Reviewed Date Approv Date
by by ed by
00 Extended Jagadish 16/08/2007
Withholding
Tax
00 Extended Saikumar 20/08/2007 KPMG 31/08/2007
Withholding
Tax
00 Extended Saikumar 31/08/2007 KPMG 03/09/2007
Withholding
Tax

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CI Number

Process
EXTENDED WITHHOLDING TAX (TDS / FBT)
Applicable Sectors
ALL SECTORS

TABLE OF CONTENT

1. Requirements/Expectations...................................................................................4
2. General Explanations (For Masters and Enterprise structure include Naming
Convention) .................................................................................................................5
3. Explanations of Functions and Events .................................................................6
4. Organizational Considerations ..............................................................................6
5. Process Diagrams...................................................................................................7
6. Changes to Existing Organization processes ......................................................7
7. Description of Improvements ................................................................................7
8. Solution in SAP. ......................................................................................................8
9. Description of Functional Deficits.......................................................................11
10. Approaches to Covering Functional Deficits ...................................................11
11. Integration considerations.................................................................................11
12. Reporting Requirements ....................................................................................11
13. Authorization Requirements ..............................................................................12
14. File Conversion / Interface Considerations ......................................................12
15. Workflow Requirement.......................................................................................12

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 1. Requirements/Expectations
A brief / bulleted list of requirements and expectations

A. Fringe Benefit tax: [Solution # A & Functional deficit]

As per Section 115WB of the Income Tax Act, 1961, it is required to calculate Fringe Benefit Tax on any
privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of
reimbursement or otherwise, to his employees, any free or concessional ticket provided by the employer for
private journeys of his employees or their family members, any contribution by the employer to an approved
superannuation fund for employees, any specified security or sweat equity shares allotted or transferred,
directly or indirectly, by the employer free of cost or at concessional rate to his employees - Act

Calculation of FBT will be done on the basis of data directly obtained from the system based on the
percentages specified in the Income Tax Act, 1961 including surcharge and education cess.

System to give alerts when the due date for payment approaches.

System to give the Advance Fringe Benefit tax computation in specified format. System should estimate the
expenses for the balance period based on data available in the system for the full financial year.

System should facilitate to store information relating to remittance of tax amount to bank with the bank
challan number (External Challan Number), Name & Branch of the Bank, BSR code, date of cheque deposit,
etc

System should provide facility for automatic printing of annual return in specified format.

B. Tax deduction at Source:

Permanent Account Number should be mandatory while creating vendor Master based on Vendor Groups.
(Typically for Service Vendors). [Solution #B6]

TDS is to be calculated and deducted as per the provisions of Section 192, 193, 194, 194A, 194C, 194H,
194I, 194J & 195 of the Income Tax Act, 1961 read with rules, circulars or any notifications. [Solution #B2]

As per Section 192, 193, 194, 194A, 194C, 194H, 194I, 194J & 195 of the Income Tax Act, 1961, system has
to calculate TDS either at the time of Invoice Posting or payment posting whichever is earlier. [Solution
#B2/11/12]

System should take care of the minimum amount specified under the above sections for calculation of TDS.
[Solution #B2]

System should facilitate to manually enter the taxable amount. [Solution #B8]

Once the tax is calculated, it should be posted to the respective account TDS payable a/c automatically.
[Solution #B9]

System should calculate on the basis of the base percentage specified under the respective section of the
Income Tax Act, 1961 together with the surcharge, education cess and Secondary higher education
thereon. [Solution #B5]

Exemptions as applicable in certain scenarios should be taken into consideration in deducting tax to Vendors.

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 [Solution #B10]

System should facilitate in preparation of duly filled in TDS remittance Challan (ITNS-281) for different
sections and further under different section for corporate and non corporate parties separately. [Solution
#B13]

System should facilitate to store information relating to remittance of tax amount to bank with the bank
challan number (External Challan Number), Name and Branch of Bank, BSR code, date of Cheque deposit,
etc. [Solution #B14]
System should provide Form 16A in case of tax deducted at source / 27D in case of tax collection tax at
Source from suppliers, contractors etc. Certificate numbers should be internally managed by the system.
However, system should facilitate to print certificates not only for section wise but also for vendor wise,
posting date wise, bank challan date wise etc. [Solution #B15/18]

System should facilitate Form 26Q / 27Q / 27EQ – Quarterly (e-filing) on TDS with respect to each section,
and recipient type. [Solution #B16]

System should facilitate reports by way of Tax deduction Number, Section as well as consolidated statement
with respect to remittance to challans, certificates issued etc [Solution thru reporting requirements]

Dividend Distribution Tax (Sec.115O) [Solution #B19]

2. General Explanations (For Masters and Enterprise structure include Naming Convention)
Describe the business process in detail. This typically does not include any SAP specific terms, it should relate purely
to the business rules.
Describe the naming and numbering convention in case of masters and enterprise structure

A. Fringe Benefit tax:

Advance Fringe Benefit is payable in the following installments:
Due date of installment Amount payable
On or before June 15 Not less than 15% of FBT.
On or before September 15 Not less than 45% of FBT. [Inclusive of first installment]
On or before December 15 Not less than 75% of FBT. [Inclusive of earlier two installments]
On or before March 15 the whole amount of FBT. [Inclusive of earlier installment(s)]

Accounting process - Advance Fringe Benefit tax account is debited and bank account is credited.

B. Tax deduction at Source:-

TDS deducted under various sections during the month is to be remitted to the government account on or
before the 7 of the following month. Rates of taxes and sur-charges as applicable will be provided.

Dividend - 14 days from the date of declaration or date of disbursement whichever is earlier
th st
In case of TDS for March, , and others – TDS deducted – 7 of next month, and for TDS provided for 31
st
March will be on or before – 31 of May will be last date.

In case of deduction for Non-Residents, payment has to be made within 7 days from date of deduction.

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 3. Explanations of Functions and Events
Explain what events and processes trigger this process

A. Fringe Benefit Tax:-

When any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by
way of reimbursement or otherwise, to his employees, any free or concessional ticket provided by the
employer for private journeys of his employees or their family members, any contribution by the employer to
an approved superannuation fund for employees, any specified security or sweat equity shares allotted or
transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees.

B. Tax deduction at Source:-

When any credit or payment is made to vendor towards Salary, dividend, interest, Contract, Advertisement,
Commission, Rent, Technical / Professional fees, foreign remittance and any other such payments / credit
which attract the provision of Tax deduction at Source.

Tax can be deducted either at the time of invoicing or at the time of payment. Rates of tax will be based on
nature of service rendered by the Vendor. Surcharge and cess as applicable will be deducted. Tax need to be
deducted at the time of advance payment also.

4. Organizational Considerations
Address any issues agreed in the workshop concerning the SAP organizational structure and this process.

Applicable for all Company Codes

Company Code
Business Place / Section Codes (TAN No.)
Vendor Master Data

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 5. Process Diagrams
Provide all related process maps or diagrams

6. Changes to Existing Organization processes

Change management issues as appropriate.
No refund is entertained with respect to vendors on wrong deduction cases if physical payment is already
made to the Government.
Interface is being used to generate data from Tally to generate Form 16A and Annual Returns where such
requirements are not necessary in SAP
TDS deducted will be calculated and posted automatically to the respective TDS Payable A/c

7. Description of Improvements
Describe improvements which will result from implementation of the SAP System. Be sure to include any impact on
business drivers.
The tax amounts will be calculated by the system on the execution of the transaction in respective modules.

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 Separate accounting entries for Taxes are not required to be passed.
System will deduct and propose the amount of TDS to be deducted from vendors at the time of invoice and
advance.
TDS Return shall be generated by the system.

8. Solution in SAP.
Describe how this process will be addressed in the product.

(A) Fringe Benefit Tax (FBT)

FBT is applicable for certain expenses incurred by the company as prescribed in Income Tax Act. FBT calculation
has to be done out of the SAP system, by extracting the required data from SAP.

Separate GL accounts will be used for capturing the data which is liable to FBT. At the time of depositing the FBT,
report shall be generated from system for calculation of FBT amount to be deposited.

(B) Tax Deducted at Source :

TDS will be covered as :

TDS on salary of employees
TDS on others

1. TDS on salary to employees will be covered in HR payroll and deduction will be done at the end of
each month. TDS on salary will be posted to a separate GL account as required. Payment to Government
will be made by Finance deptt. Every month on the due date.

Accounting entry on the payroll run:

Dr. Employee vendor a/c
Cr. TDS on Salary payable

Deposit of TDS:
Dr TDS on Salary payable
Cr Bank account

Form 16 for tax deducted from salary of employees shall be generated from HR. Similarly Tax return for
Salary will also be generated from HR.

Other TDS will be categorized as per the following sections under Income Tax Act.
2. Official Withholding tax key :

The deduction of TDS takes place under various sections of the Income Tax Act. These sections are defined as
Withholding Tax keys in the system and mapped to the sections of the Income Tax Act under which TDS is to be
deducted. Based on the above the following official Withholding Tax codes shall be created in the system:

Section-193 TDS on Interest on Securities

Section-194 TDS on Dividends
Section-194A TDS on Interest other than Interest on securities
Section-194C TDS on payment to Contractors and sub contractors
Section-194H TDS on Commission and Brokerage
Section-194I TDS on Rent

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 Section-194J TDS for Professional and Technical services
Section-195 TDS on payments for Foreign services

3. Recipient type:
The vendors from whom TDS is deducted need to be classified as Company and Others.
Recipient type enables categorization of the vendors. This categorization is required for creation of
separate challans and printing the TDS certificates

4. Withholding Tax types:

Withholding tax types are defined at client level to represent the various types of withholding taxes
for eg 194C, 194D etc. Withholding tax types are also used to determine whether the deduction of
TDS will take place at the time of invoice verification or at the time of payment. These withholding tax
types can be used once these are linked to the Company codes. Withholding tax types shall be
configured as per GMR requirement. For each withholding tax type minimum and maximum
amounts shall be maintained.

5. Withholding Tax Codes:

The various sections of the Income tax Act prescribe the rate at which the Tax is to be deducted.
Withholding tax codes are used to define the rate at which tax is to be deducted and the base amount
on which the tax is to be calculated. The rate will also include rate of surcharge and Education Cess if
any is applicable. SAP suggests to go with one tax code which is inclusive of basic tax rate,
surcharge and Education cess.Surcharge and Education cess rates shall be maintained separately in
tables and printed on the Vendor TDS certificate. In system we can have 99 inherent tax codes only
due to this we should not go for exclusive method. For each withholding taxcode, minimum and
maximum amounts shall be maintained.

6. Vendor master:
WHT type /codes shall be maintained in the Vendor master as applicable to the vendor. Tax
computation will be done by the system based on the WHT type/code maintained in the vendor
master at the time of invoice entry and also advance payments. Withholding Tax Type and
Withholding Tax code are maintained at the Invoice Entry level and

PAN# will be made as a part of Vendor Master.

Only tax type is maintained at the Payment level. This will ensure tax will not be deducted both at
the time of invoice and payment. In the case of Advance payment, tax type will be maintained and
user need to select the tax code. If multiple TDS sections are applicable to a particular vendor, then
all the tax types and tax codes for invoice s applicable for those TDS sections must be maintained in
the vendor master. However at the time of invoice entry the user has to select the correct tax type
and code and exclude those which are not applicable.

7. SAP suggested to go for one withholding tax code which is inclusive of basic rate, surcharge
and education cess. Surcharge and Education cess rates shall be maintained in separate table and
printed on Vendor TDS certificate. In system we can have 99 inherent tax codes only due to this we
should not go for exclusive method

8. System should facilitate manually enter the taxable amount :- At the time of posting
user shall amend the base amount.

9. Once the tax is calculated, it should be posted to the respective account Tax Payable
A/c automatically is a standard functionality. TDS Payable Account will be maintained section wise.

10. Exemptions rates will be maintained at the Vendor Master level for deducting tax to
vendors.

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 11. Accounting entry at the time of Invoice entry:

Dr Expense a/c
Cr Vendor
Cr TDS Payable

Separate GL accounts shall be created section wise like

TDS payable - Contractors
TDS payable - Professional fee. etc.
12. Accounting entry for advance payment to vendors:

Dr. Vendor Advance a/c

Cr. Bank a/c
Cr. TDS Payable
13. TDS remittance: Remittance will be made through the system by standard T-code
J1INCHLN. Challans will be updated for each section wise, corporate and Non
corporate separately. Due dates will be defined in the configuration for each section
wise.

Dr TDS Payable
Cr Bank a/c

14. Bank Challan updation: Bank challan number will be updated in the system through
standard T code – J1INBANK. This will link the remittance challans with the external
bank scroll number. No accounting entry will be generated.

15. TDS certificate: Certificates for the vendors can be generated by T Code- J1INCERT
Certificates can not be generated more than once. However duplicate certificate can be issued.

16. Quarterly E-Returns: E-Returns for TDS shall be generated from the system by T code –
J1INQEFILE. The return shall be converted into required excel file and can be
validated for filing.

17. TDS deducted by Customers:

A separate set of WT tax code & tax type shall have to be created for customers. Following
accounting entry shall be generated at the time of receiving the payment:

Dr. Bank a/c

Dr. TDS deducted by customer a/c
Cr. Customer a/c

The system will propose the TDS amount and the user can overwrite the amount, if required.
After receiving the TDS certificate from the customer, J1INCUST transaction shall be run and
following accounting entry shall be generated:

Dr. Advance Tax Paid A/c

Cr. TDS deducted by customer a/c

18. Tax Collected at source (TCS)

TCS is applicable on sale of Scrap to customers. Tax has to be collected at the time of billing to
customers and to be grossed up.

TCS will be covered by creating a separate condition type in Sales and Distribution module and
system will calculate TCS at the time of sale of scrap. TCS amount will be posted to TCS payable

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 GL account in FI. Payment for the same will be from FI by T-Code F-07.

Accounting entry on billing:

Dr. Customer
Cr. Revenue a/c
Cr. TCS Payable
Cr. Other taxes

Deposit of TCS into Govt.:

Dr. TCS payable

Cr. Bank a/c

System should facilitate reports by way of Tax Deduction No, Section, Consolidated statement:- A
standard functionality in SAP.

19. Dividend Distribution Taxes (Sec.115O): This has to be manually calculated and
entered in the system by passing JV (Txn.FB50 or F-02).

9. Description of Functional Deficits

Where appropriate, identify any gaps. This section is important when assessing risk, as well as estimating the need
for ABAP (or similar) resources.

Computation of Fringe Benefits Tax (FBT)

TCS certificate has to be issued to the customers from whom Tax has been collected.

10. Approaches to Covering Functional Deficits

Documentation of any work-arounds or assumptions that have been made when outlining functional deficits.

Workaround suggested for FBT by identifying the accounts for FBT and tax calculation out of SAP.

11. Integration considerations

Specify what integration you need with other modules / sub modules

MM Module: TDS,
HR Module: TDS on salary
SD Module: TCS

12. Reporting Requirements

Document the various reports that you would require.

A. Fringe Benefit Tax:-

Computation of Advance Fringe Benefit tax for the 1, 2, 3 and Final instalment.(format attached)
Quarter wise & consolidated computation of FBT
Fringe Benefit tax return. (format attached)
FBT-Format for FY 2007-08.xls
FBT Return.xlsx

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 B. Tax deduction at Source:-
Report to generated in Form No.26Q / 27Q / 27EQ – Quarterly ETDS returns.(format attached)
TDS remittance sections wise, TAN No wise, quarter wise, etc (format attached)
challanitns-281.pdf (T.Code J1INQEFILE ) gives the Quarterly ETDS returns.
eTDSRPUForm26Q_ver3.21.xls
eTDSRPUForm27Q_ver3.22.xls
eTDSRPUForm27EQ_ver3.22.xls
Reports are Standard.

13. Authorization Requirements

Document the level of authorizations that you need for each process in the system

Authorization to be given to Direct taxation department for all sector for Internal audit
Authorization to be given to Direct taxation department to view taxation accounts
Authorization to be given to generate all Tax reports, Tax returns etc.,

14. File Conversion / Interface Considerations

Document file conversion / interface requirements. Where the information is to come from, what data is to be
converted manually/automatically and at what point in time. This is critical information that is used later.

NIL

15. Workflow Requirement

Document workflow requirement in this process including the levels of approval required. Mention who will initiate the
workflow and who all will be the recipients of the work item
Refer Process Diagram above.

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