03 - Setting up Withholding Tax

Created by Connect Getaccountify, Modified on Wed, 6 Aug, 2025 at 12:24 PM by Connect Getaccountify

Withholding Tax (commonly referred to as TDS) allows your accounting app to automatically deduct a portion of the payment when recording vendor bills, as per applicable tax regulations.

1: Enable Withholding Tax:

Before you can assign TDS to vendors, you must first enable the feature:

Go to App Settings or Configuration.
Enable the Withholding Tax / TDS option.
Save your changes.

2: Create a Withholding Tax Rule:

Each TDS type (e.g., Contractor TDS, Professional Fees TDS) is created as a rule.

Steps:

Go to the Withholding Taxes tab.
Click New.
Fill in the following fields:

Field	Description
Withholding Tax Name	Name of the component (e.g., TDS 10%)
Purchase Withholding Rate	Rate to be deducted while paying vendors
Purchase Withholding Tax Ledger	GL account for posting vendor-side withholding
Sales Withholding Rate	Rate to be deducted from customer payments if applicable
Sales Withholding Tax Ledger	GL account for posting customer-side withholding
Withholding Amount	Whether tax is computed Before Tax or After Tax

Click Save.

3. Assign TDS to Vendors:

Once the rule is created, associate it with relevant vendors.

Steps:

Open a vendor record.
In the Withholding Tax field, select the appropriate rule.
Save the vendor.

Once assigned, TDS will automatically apply when bills are created for that vendor.

4. TDS Auto-Deduction on Vendor Bills:

When you create a vendor bill:

The system checks if the vendor has a TDS rule.
If yes, the specified percentage is automatically deducted.
The deduction is recorded in the Withholding Tax Payable account.

Example:

Vendor: ABC Services
TDS Rule: Professional Services @ 10%
Bill Amount: ₹10,000
TDS Deducted: ₹1,000
Payable Amount: ₹9,000

You can assign this withholding tax to vendors/customers or transactions as needed.

You can also perform the following actions on existing records:

Edit Withholding Tax Component:
Update an existing withholding tax component by selecting it, clicking Edit, modifying the details, and clicking Save.

Clone Withholding Tax Component:
Create a new withholding tax component using the details of an existing one by selecting it, clicking Clone, and saving it after necessary edits.

Delete Withholding Tax Component:
Remove a withholding tax component permanently by selecting it and clicking Delete on the details page.

Attach Files to Withholding Tax Component:
Add relevant files to a withholding tax component by uploading through the Notes & Attachments section or by dragging and dropping files.