Hi Gurus and experts,
one concept I want to clear that what is rule of withholding tax code posting, means that what if at the time of invoice posting if withholding tax code calculated then it will not calculated at the time of payment posting(whichever is earlier). And how come so possible that withholding tax calculated at the time of payment posting first without posting invoice. I am just getting confused about this concept in India.
Please can someone clear this concept.
Below is the definition of TDS:
The concept is simple, the person who is availing a service is obliged to deduct tax at source and remit the same to the Tax Authority (In India, to the Income Tax Department). Now depending on whether you book invoice first or make an advance first (Downpayment), you need to deduct the with holding tax (TDS), that is the law. Hence you have the provision for with holding tax on invoice or payment and you apply the tax type & code depending on your business requirements, which ever happens first. So if your invoice is booked first, you use the with holding tax for invoice and if you have a down payment first, than you use the with holding tax for payment. If you pay partially the downpayment first, than you use the with holding tax for payment. Now when you book the invoice, you also use the with holding tax for invoice. In this scenario, you deduct more with holding tax than requirered by tax authority, so a downpayment clearing will help adjust the invoice against advance paid as well as with holding tax deducted with Downpayment against the with holding tax on invoice. This will ensure that right with holding tax is paid to tax authority.
Thanks & regards