Lower Deduction Certificate

Lower Deduction Certificate

A payer is required to withhold tax at source at the established rates in accordance with the tax withholding category. The government wants the payers to withhold tax upfront and deposit it with the government rather than getting tax on your income from you at a later time. Yet, a small number of taxpayers who may not have taxable income for that fiscal year may experience problems as a result of this technique of deducting tax at source.

Because of this, the government offers these taxpayers the option to get a certificate at a lower rate or NIL rate of TDS than the rate mentioned in the tax withholding category.

1. Prerequisites

The following should be created and studied prior to creating and using a Reduced Deduction Certificate:

1. Supplier
2. Tax Withholding Category

2. How to create a Lower Deduction Certificate

1. Click on New under the Reduced Deduction Certificate list.
2. Key in your certificate number.
3. Choose a section code.
4. Add a Fiscal Year.
5. Decide on the Provider with a current PAN number. By selecting the Supplier, the PAN number will be automatically obtained.
6. Insert Valid From and Valid Up To dates.
7. Insert the certificate limit and the TDS rate as specified in the certificate.
8. Choose Save.

3. Using Lower Deduction Certificate

3.1 Use in Purchase Invoice

We have chosen the TDS category "TDS - 194D - Individual" in the example below, which has a rate of 5%.

1. In the supplier master, select the Tax Withholding Category for the Supplier. After choosing that Supplier, an option for applying tax or not will become visible in the purchase invoice, and the TDS category will be automatically fetched.

2. Let's make a 20,000 invoice. Tax is automatically calculated when saving the invoice and is added to the Purchase Taxes and Charges table. The Reduced Deduction Certificate indicates that the current tax rate is 1% even if the tax category assigned to the supplier has a tax rate of 5%.