Mastering Tax Withholding Category in Empress Accounting

Guides & Tutorials
1

Introduction

Introduction

Empress offers an accounting module with a feature called the Tax Withholding Category. This feature helps businesses manage the process of Tax Deducted at Source (TDS), allowing the payer to deduct tax before payment and deposit it with the government. This simplifies the process of tax collection and ensures compliance with government regulations.

Accessing Tax Withholding Category

To locate the Tax Withholding Category in Empress, follow this navigation path:

Home > Accounting > Taxes > Tax Withholding Category

Setting Up

Before you can effectively use the Tax Withholding Category, you’ll need to have already created:

  1. A Supplier
  2. A Customer

Creating a New Tax Withholding Category

While Empress usually includes default Tax Withholding Categories, you may need to create new ones. Here’s how:

  1. Navigate to the Tax Withholding Category list and select ‘New’.
  2. Provide a unique name such as ‘Section 194C Individual’.
  3. Type in a Category Name (e.g., Dividends, Professional Fees).
  4. Input a Tax Withholding Rate for the relevant Fiscal Year.
  5. Set the threshold for a single invoice or the sum of all invoices.
  6. Choose an account for your Company where the tax will be credited.
  7. If necessary, add more companies and accounts.
  8. Remember to save your changes.

Allocating Tax Withholding to Suppliers

Once you’ve saved your new category, you can assign it to a Supplier.

Understanding the Threshold

The threshold is the limit that determines when tax is applied. For instance, if a rate of 5% is applicable on an invoice where the single threshold is 20,000 and the cumulative threshold is 30,000, tax will be applied when either threshold is met or exceeded.

Applying Tax Withholding in Purchase Invoices

The Tax Withholding Category can be used in Purchase Invoices. For example, if you select ‘TDS - 194C - Individual’, which has a single threshold of 30,000, a cumulative threshold of 1,00,000, and a rate of 1%, tax will be applied to invoices that meet these thresholds.

Deducting Tax at Source on Advances

Empress also allows you to deduct tax at source on advances. This can be done against a Purchase Order or via Payment Entry.

Deducting TDS against Purchase Order

Here are the steps:

  1. Set up a Tax Withholding Category for a supplier and make a Purchase Order for that supplier.
  2. Create a Payment Entry against that Purchase Order. Enable ‘Apply Tax Withholding’ and enter the necessary details, then save and submit the entry.

Deducting TDS against Advances Paid (Using Payment Entry)

Here’s how:

  1. Choose ‘Payment Type’ as ‘Pay’.
  2. Select ‘Party Type’ as ‘Supplier’ and select the relevant supplier.
  3. Input the paid amount before TDS deduction.
  4. In the Taxes and Charges section, check ‘Apply Tax Withholding Amount’ and select the Tax Withholding Category.
  5. Remember to save and submit the entry.

Setting up TCS - Section 20C(1H) for Eligible Customers

Creating a Tax Withholding Category for TCS - Section 20C(1H) and setting it up for an eligible customer is also possible. Simply create the category, set the cumulative threshold to 50 Lakhs as per the scheme, and assign it to the customer.

Advanced Options in Tax Withholding Category

Empress offers advanced options in the Tax Withholding Category:

  1. Consider Entire Party Ledger Amount: Allows the system to calculate the threshold on the full party ledger amount rather than the sum of the net total of specific invoices.
  2. Only Deduct Tax On Excess Amount: Allows tax to be deducted only on the amount exceeding the threshold, not the whole amount.
  3. Round Off Tax Amount: Rounds off the calculated tax amount to the nearest integer value.

Conclusion

The Tax Withholding Category in Empress is a powerful tool that simplifies the process of tax collection and ensures compliance with government regulations. By understanding and effectively using this feature, businesses can streamline their operations and avoid potential tax-related complications. For additional support or resources, please consult the Empress help center or contact customer service.