Withholding tax processing

Withholding tax is typically a government requirement. The payer of income withholds or deducts direct tax from the payment and pays the tax to the government. Accounts payable withholding tax encompasses situations where amounts are held back from payments to the vendor and the payments are reported to the government.

India specifics

TDS enables withholding income tax at the source when income arises or accrues.

Method of Calculation

Withholding Tax or Tax Deducted at Source (TDS) is a method of collecting income tax at the origin of payment. Income Tax is deducted either at the time of receiving the invoice or the actual payment, whichever is earlier. It is not deducted when the invoice is paid. The tax that is deducted at source must be paid to the government.

When an advance is paid to the provider of the service, TDS must also be accounted for. When receiving/processing the invoice, the invoice value paid to the provider is after deducting the TDS value on the invoice. The invoice TDS value is reduced by any TDS value paid in advance. Therefore, a facility to deduct TDS from advance payments is required. A look-up of cumulative amounts on which TDS has already been paid during invoice entry is also required. For TDS on advances, the buyer records the advance payment that is made to the vendor as the gross value. Gross value is net value actually paid + withheld tax deducted at source:

Debit Creditors – gross value (net vendor payment + TDS)
Credit Bank – net vendor payment
Credit Withholding Tax Payable Account – TDS amount

How Infor meets the requirement

Global Withholding (Accrued) Functionality is used. See the Payables User Guide.