Indian Budget 2025: Navigating TDS Changes in SAP ...

Naveen_SG · ‎2025 Apr 11

The Indian Budget 2025 has brought forth significant amendments to the Tax Deduction at Source (TDS) provisions under the Income Tax Act, 1961. These changes aim to simplify tax compliance for both businesses and individuals by introducing higher threshold limits and streamlining overall taxation processes.

This article will delve into the some of the key changes in TDS and provide a practical guide on how to implement these updated requirements within your SAP S/4HANA system.

Enhanced Threshold Limits For TDS

A crucial aspect of the Budget 2025 is the increase in threshold limits for TDS applicability under certain sections. This means that TDS will only be triggered when the transaction value exceeds these new, higher limits. The revised thresholds, effective from April 1, 2025, are outlined below:

Section

Before 1st April 2025

From 1st April 2025

194B - Winnings from lottery, crossword puzzle Etc.

194BB - Winnings from horse race

Aggregate of amounts exceeding 10,000/- during the financial year

10,000/- in respect of a single transaction

194-I - Rent

2,40,000 (in a financial year)

50,000 per month

Let's explore how to configure SAP S/4HANA to align with these enhanced threshold limits for specific TDS sections:

For TDS Section 194I (Rent Payments)

To ensure TDS is deducted only when monthly rent payments exceed ₹ 50,000, follow these customization steps in SAP S/4HANA Cloud:

Set Accumulation Type:

Navigate to the Define Withholding Tax Type for Invoice Posting activity (ID: 104225).
Choose Configure and select your country/region key.
Locate the withholding tax type for 194I.
Set the "Accumulation type" to "Per month". This instructs the system to track payments on a monthly basis.
Verify that the corresponding withholding tax code(s) for 194I have the correct TDS rate.

Set Minimum Amount:

Open the Define Min/Max Amounts for Withholding Tax Codes activity (ID: 103915).
Choose Configure and select your country/region key.
Find the withholding tax code for your 194I.
Set the "Minimum base amount" to INR 50,000 and the "Valid from date" to 01.04.2025.

Ensure the relevant withholding tax code is assigned to the respective vendors in the Vendor Master. Now, upon entering a rent invoice, the SAP S/4HANA system will:

Check if the total rent paid to the vendor within that specific month has surpassed ₹ 50,000.
If the threshold is crossed, TDS will be calculated on the entire amount of that month's invoice.

For TDS Section 194B (Lottery/Game Winnings):

To deduct TDS when a single winning amount from lottery or games is ₹ 10,000 or more, implement the following configurations in SAP S/4HANA Cloud:

Set No Accumulation:

Go to the Define Withholding Tax Type for Invoice Posting activity (ID: 104225).
Choose Configure and select your country/region key.
Find the withholding tax type for 194B.
Set the "Accumulation" to "No accumulation". This ensures that each transaction is evaluated independently against the threshold.

Set Minimum Amount:

Open the Define Min/Max Amounts for Withholding Tax Codes activity (ID: 103915).
Choose Configure and select your country/region key.
Locate the withholding tax code for your 194B.
Set the "Minimum base amount" to 10,000 and the "Valid from date" to 01.04.2025.
Ensure the appropriate withholding tax code is linked to the relevant vendors in the Vendor Master.

With this configuration, the system will:

Evaluate each payment for lottery or game winnings individually.
Deduct TDS if the amount of a single transaction is ₹ 10,000 or more.

TDS on Partner’s Remuneration Section-194T

A significant addition in the Budget 2025 is the introduction of Section 194T, which mandates TDS on certain payments made by a firm (partnership firm or LLP) to its partners. Previously, TDS was not applicable to payments like salary, bonus, commission, or interest to partners.

Key Provisions of Section 194T:

Applicability: Any firm responsible for paying salary, remuneration, commission, bonus, or interest to a partner.

TDS Rate: 10%.

TDS Threshold Limit: TDS is applicable only if the aggregate amount paid or credited to a partner during the financial year exceeds ₹ 20,000.

Timing of TDS Deduction: TDS must be deducted at the earlier of the following two events:

At the Time of Credit: When the sum is credited to the partner’s account, including capital accounts.
At the Time of Payment: When the payment is made to the partner, whether through cash, cheque, draft, or other modes.

Payment	TDS Rate	TDS Threshold Limit
Remuneration, Interest and Commission paid to partners	10%	Exceeds Rs. 20,000 in a financial year.

Steps to Configure 194T in SAP S/4HANA Cloud:

A. Define Withholding Tax Key:

Access the Define Withholding Tax Keys configuration activity (ID: 104229).
Create a new entry for 194T with a relevant description.

B. Define Withholding Tax Type:

Use the Define Withholding Tax Type for Invoice Posting activity (ID: 104225).
Choose Configure and select your country/region key.
Create a new withholding tax type for 194T.
Set the "Accumulation type" to "Per year starting with month: 4". This ensures annual tracking of payments from April to March.

C. Define Withholding Tax Code:

Create a new withholding tax code specifically for 194T.
Set the tax rate to 10%.
Assign the withholding tax key and type created in the previous steps.

D. Set Minimum Amount:

Open the Define Min/Max Amounts for Withholding Tax Codes activity (ID: 103915).
Choose Configure and select your country/region key.
Locate the withholding tax code for 194T.
Set the "Minimum base amount" to INR 20,000 and the "Valid from date" to 01.04.2025.

E. Similarly, create a corresponding withholding tax type and withholding tax code for payment postings, if required by your business processes.

F. In the Vendor Master (for partners treated as vendors), ensure the newly created withholding tax code(s) for 194T are added to the partner's record.

Exemption Limit vs. Accumulation/Threshold Limit in TDS (India)

In the context of Tax Deducted at Source (TDS) in India, it's crucial to distinguish between how the "exemption limit" and the "accumulation/threshold limit" are applied. These determine when and how TDS is triggered.

Exemption Limit Check:

Concept: Under an exemption limit check, TDS is levied only on the amount that exceeds a specified limit. Any cumulative amount paid or credited to a supplier beyond this limit becomes subject to TDS deduction.
SAP Implementation (India Localization): In SAP S/4HANA and SAP ECC, the exemption limit check, as described, operates specifically for TAN-based exemptions at the vendor-PAN level. This means:

The exemption limit is defined at the vendor master level under the "Country India" tab, based on the exemption certificate number.
The system tracks the cumulative amount paid/credited across all vendors associated with the same Permanent Account Number (PAN).
Once the cumulative amount across these vendors exceeds the specified exemption limit, TDS is deducted on the excess amount for subsequent invoices or payments.

Example (TDS Section 194Q): As highlighted, Section 194Q stipulates that TDS at 0.1% is applicable on the amount exceeding ₹50 lakh in a financial year from a seller from whom purchases worth more than ₹50 lakh have been made.

If a buyer with multiple vendors under the same seller PAN cumulatively purchases goods worth ₹55 lakh, TDS will be deducted on ₹5 lakh (₹55 lakh - ₹50 lakh) on the subsequent invoice or payment.

Accumulation/Threshold Limit Check:

Concept: With an accumulation/threshold limit check, TDS becomes applicable the moment the total amount paid or credited to a supplier in a financial year crosses a predefined threshold. Once this threshold is breached, TDS is deducted on the entire amount paid or credited to that specific supplier for the financial year.
SAP Implementation: At present in SAP S/4HANA and SAP ECC, the accumulation/threshold limit check is performed at the individual vendor level, irrespective of how many vendor masters exist for the same PAN.
Example (TDS Section 194I): Consider the provided scenario for Section 194I with a monthly threshold of ₹50,000 for rent:

ABC Ltd. pays ₹75,000 monthly rent to Mr. Sharma (one vendor).
Since the monthly rent of ₹75,000 exceeds the ₹50,000 threshold, TDS is applicable on the entire ₹75,000 for that month.
The fact that ABC Ltd. might have other landlords (different vendors, potentially with the same PAN as Mr. Sharma for other properties) is irrelevant for this specific vendor and the ₹50,000 monthly threshold for rent under Section 194I. TDS will be calculated on the full rent paid to each landlord individually if their respective rent exceeds the threshold.

Additional Information

For further detailed guidance and specific configuration steps within SAP S/4HANA, especially considering whether you are using the cloud or on-premise version, SAP has provided several helpful resources.

Refer to the SAP Notes 3587527 and 3580598 for changes related to TDS sections 194I and 194B in Cloud and On-premise environments, respectively.

Specific configurations for the newly introduced Section 194T on payments by partnership firms to partners are detailed in the SAP Notes 3590606 and 3590334.

Additionally, comprehensive information on configuring TAN Based Exemption can be found in the SAP Help Portal.

For a holistic understanding of withholding tax configurations, both Withholding Tax Configurations - Cloud and Withholding Tax Configuration – On-prem pages on the SAP Help Portal offer valuable insights.

Leveraging these resources will ensure accurate and efficient implementation of the updated TDS regulations in your SAP S/4HANA system.

Conclusion

By carefully implementing these configuration steps and adhering to the recommendations, you can effectively align your SAP S/4HANA or SAP ECC system with the updated TDS provisions of the Budget 2025, ensuring smooth tax compliance and accurate financial reporting. Remember to thoroughly test these changes in a non-production environment before implementing them in your live system to ensure a smooth transition and accurate financial and billing processes. Always consult with your SAP consultants for any complex configurations or specific business requirements.