Lower Deduction Certificate

Before you start working with Lower Deduction Certificates (LDCs), make sure you understand and have set up the following:

Supplier (Vendor/Party) The supplier master should have a valid PAN or other applicable tax identification number. Tax Withholding Category (TDS/TCS) Defines the withholding section, applicable rate, thresholds, and accounts where the withheld tax will be booked.

1. Tax Withholding Category

1.1 Create a New Category

1. Go to:

Home > Accounting > Taxes > Tax Withholding Category

2. Click New.
3. Enter details:
   • Name(e.g., “Section 194C – Individual”)
   • Category Name (Professional Fees, Dividends, etc.)
   • Rate (with Fiscal Year)
   • Thresholds: Single Invoice Threshold, Cumulative Threshold
   • TDS/TCS Account: Ledger where withheld tax will be posted
4. Save.

1.2 Assign to Supplier

In the Supplier Master, mark the Tax Withholding Category field and save.

1.3 Thresholds in Action

• When an invoice value is less than both single and cumulative thresholds, withholding is not applied.
• As soon as the cumulative value for a supplier is above the threshold, withholding applies automatically.

1.4 Usage in Transactions

• Purchase Invoice:

If a supplier with a withholding category is chosen, an Apply Tax Withholding checkbox is visible. Saving the invoice automatically applies the withholding in the Taxes & Charges table.

• Payment Entry (for Advances):

When advances are paid to the supplier, withholding will also be applied if specified in the policy.

2. Lower Deduction Certificate (LDC)

2.1 Purpose

A taxpayer can sometimes lack taxable income or be qualified for a lower TDS rate. Where so, the tax department releases a Lower Deduction Certificate (LDC) allowing the payer to deduct tax at reduced or NIL rate in lieu of the regular rate.

2.2 Generate a Lower Deduction Certificate

1. Go to Lower Deduction Certificate list.
2. Click on New.
3. Enter:
   • Certificate Number
   • Section Code (according to the applicable tax law)
   • Fiscal Year
   • Supplier (should have a valid PAN/tax ID; retrieved automatically on selection)
   • Valid From & Valid Up To dates
   • TDS Rate (according to the certificate)
   • Certificate Limit (amount that can be covered under this certificate)
4. Save.

2.3 Application of the Certificate in Purchase Invoice

• When saving a purchase invoice:
  • Choose a supplier associated with both a tax withholding category and a valid lower deduction certificate.
  • Check the Apply Tax Withholding.
  • While saving, ERPNext will compare:
    • Standard TDS Rate from category
    • Reduced/NIL Rate from certificate
  • If the certificate is within dates and within limit, ERPNext uses the lower rate.

Example:

• Tax Withholding Category rate = 5%
• Lower Deduction Certificate rate = 1%
• Invoice of 20,000: Only 1% (200) will be deducted, not 5% (1000).

3. Related Topics

• Tax Withholding Category

Follow for more

• Go to Zikpro ERPnext Demo
• www.zikpro.com