Extended Withholding Tax
Configuration Document for Extended Withholding Tax
Config
doc_Extended Withholding Tax.docx
Challenges faced during EWT implementation
o Users lack of process knowledge.
o Transporters, Lower deduction and No deduction transactions that needs to be updated with proper reason
code in the output of TDS e-file was one of the challenges faced during implementation.
To update the above transactions there are some standard processes that needs to be followed and few SAP
notes needs to be implemented. These processes and SAP notes are given below.
o System was not checking PAN validity from date in the vendor master. For this we have asked SAP to develop
the enhancement and they came back with SAP note 1446746.
Functional Best Practice evolved in any project for the successful implementation
 BBP documents should be up to the mark as per client requirement.
 Understand the requirements and scope of a SAP implementation. Also need a clear understanding of the technical
and functional process knowledge of respective module.
 Cross questioning to the client requirement.
Innovation related to SAP Financials
There was a requirement from client to create a service tax liability but the same service tax amount should not get added
to the vendor account.
For E.g.
Standard Vendor Invoice
Expense A/c
Dr
100000
Service Tax A/c
Dr
12360
To Vendor A/c
CR
(12.36%)
112360
Client Requirement -- create the service tax liability during vendor invoice posting
Expense A/c
Dr
112360
To Service Tax A/c CR
To Vendor A/c
CR
12360
(12.36%)
100000
This requirement was fulfilled by Extended Withholding Tax, where we calculate service tax amount manually and added
in vendor line item and the amount from the vendor line item is base amount for WHTax calculation, where instead of TDS
account to get credited, we have defined service tax accounts. PF below attached document
Service Tax Liability
through WHTax.docx
End to end functional process in SAP for TDS calculation
Update WHtax and PAN Detail in Vendor Master
Tcode – FK02- Select Vendor, company code and check box Withholding tax data and press enter.
Update the WHtax type, make it liable and also update the recipient code.
For updating the PAN details click on CIN DETAILS Tab.
Go to Withholding tax tab and update the PAN details along with the PAN valid from date.
Important Note 
1. Ensure SAP Note 1733624 and 1446746 is implemented in your system for PAN Validity check.
2. It’s mandatory to update the PAN Valid from date. If PAN Valid date is 01/04/2012 and the posting date of invoice
or Down payment is less than 01/04/2012, system will give the below hard error message.
“PAN validity date is greater than posting date.”
Solution  In this case, change the PAN valid date in the master.
3. If Vendor is not providing PAN details and it’s not updated in master, the system will throw hard error message
“PAN not Available” during posting.
Solution  In this case, update the higher Withholding tax code which is 20% if PAN is not available during posting.
The invoices those are posted with higher rate, system will update the reason code ‘C’ automatically in the output of e-file
which is generated during Quarterly TDS Returns (J1INQEFILE).
TDS transaction processing
Advance Down Payment through F-48 with TDS deduction
Invoice Posting through FB60 with TDS deduction
In the above two scenario TDS is deducted in both advance and invoice posting. We need to reverse the TDS whichever is
lower. For this we need to run F-54 Tcode.
Clear down payment against invoice F-54
The TDS amount deducted at the time of advance and invoice whichever is lower gets reversed during F-54 processing.
Here at the time of clearing advance down payment against invoice, Rs.200/- TDS got reversed because TDS amount
deducted during advance was lower than TDS amount deducted during invoice.
Important Note:
For TDS adjustment, business place entered should be common in both the advance and invoice document and then only
it will get adjusted / reversed during F-54.
Below are the reason codes which will be updated automatically in the output file of J1INQEFILEQuarterly return report.
Reason Codes
Description
'A'
Lower or No deduction/collection under section 197/
206C (9).
B'
No deduction under section 197 or 197A.
'C'
Higher rate.
'Y'
Threshold transaction.
'T'
Transporter transaction.
Important Note 
 Reason code ‘A’,’B’ AND ‘T’ needs to be configured. Define Exemption Reasons
Classify Exemption Reasons
 Specifically reason code ‘T’ and ‘B’ is to update the transport vendor invoices and the vendor invoices where
no deduction is applicable respectively in quarterly return report J1INQEFILE. These invoices are posted with
100% exemption. We need to update the exemption detail in the vendor master for the same.
 System will updated the reason code ‘C’ and ‘Y’ automatically.
 To update system all the above reason codes in the quarterly report we need to follow the below process.
Reason code ‘A’ 
Go to vendor master and update the Exemption details and Exemption reason code as ‘A’, since TDS will be deducted at
lower rate as per no deduction under section 197 / 206C.
Invoice # 1900000512 is posted using FB60 Tcode where in TDS is deducted at lower rate (90% exemption).
60000*2 %( TDS) =1200. On 1200*90% is exempted and TDS calculated on 10% that is Rs. 120.
Please look at the output file attached in the last step of this process of quarterly return report for view. For this invoice
reason code ‘A’ is updated.
Reason code ‘B’ 
Go to vendor master and update the exemption details and exemption reason code as ‘B’, since 100% TDS exemption will
be given as per no deduction under section 197 or 197A.
Do not update type of recipient, since no TDS will be deducted /calculated due to 100% exemption.
Invoice # 1900000511 is posted using FB60 Tcode where in TDS is not deducted since 100% exemption is given.
Please look at the output file attached in the last step of this process of quarterly return report for view. For this invoice
reason code ‘B’ is updated.
Reason code ‘T’ 
Go to vendor master and update the exemption details as 100% and exemption reason code as ‘TR’, since there is no TDS
applicable for transport vendor.
Do not update the recipient type, since no TDS will be deducted /calculated due to 100% exemption.
Invoice # 1900000510 is posted using FB60 Tcode where in TDS is not deducted since 100% exemption is given.
Please look at the output file attached in the last step of this process of quarterly return report for view. For this invoice
reason code ‘T’ is updated.
Reason code ‘C’ 
For Vendor # 10000009 PAN valid date is 01/05/2012.
As PAN valid date is greater than posting date, system will throw the error message “PAN validity date is greater than
posting date.”
Update the WHtax code to the high rate and post the transaction.
Invoice #1900000515 is posted with 20% TDS high rate.
Please look at the output file attached in the last step of this process of quarterly return report for view. For this invoice
reason code ‘C’ is updated.
Create Remittance Challan using J1INCHLN Tcode.
Important Note 
 To update transport and no deduction vendor (100% exempted vendors) in the database of quarterly return report,
do not enter recipient type during remittance challan creation. This is because when invoices were posted to these
vendors, recipient type was blank in the master.
 Once the remittance challan is updated, below message will Pop- up
It’s very important to pop-up this message. This means that the database is updated for 100% exempted vendors
such as transport and no deduction vendors. These invoices will get updated in the output file of J1INQEFILE –
Quarterly return report.
Update the Bank Challan using J1INBANK Tcode.
Selection screen.
Execute
Bank Challan is updated.
Execute Quarterly TDS Return report J1INQEFILE.
Ensure that 100% exempted / Transport Vendor check box is ticked.
When we click on this check box, the database which was updated for 100% Exempted Vendors during Remittance Challan
will derive in the output e-file.
Also update all other required fields such as Address Details, Responsible Person’s Address and Output Processing Option
as below –
And Execute
Below 4 files got generated. PFA the output file for view.
 FVU / TXT file.
 Challan.
Return_Challan.XLS
 Deductor.
Return_Deductor.XL
S
 Deductee.
Return_Deductee.XL
S
The reason code which is updated in Deductee file is as per the income tax rule.
Below are some important SAP Notes which need to be applied / exist in the system.
1631841
J1inqefile - w. /tax Base Accumulation
The invoices for which the TDS is not calculated because of threshold limit will also get update in the Quarter return report
J1INQEFILE.
1734655
Duplicate line item with reason code Y
Issue related to duplicate invoices those are appearing in the output file of report J1INQEFILE for 100% exempted vendor
will get resolved, once the note is applied.
1716089
Quarterly returns file (2012) not validating through FVU 3.4
There are four e-files which will get generate during report J1INQEFILE run. Out of which one file is .txt file. This file will be
uploaded in the FVU 3.4 software to validate the file. Once the note is applied the .txt file gets updated automatically with
all the data which are required for validation. Once the file is validated it will be uploaded in NSDL site.
1731965
Incorrect reason code updated in Q-returns file.
This note will update the correct reason code in the output file of J1INQEFILE report.
1733624 / 1446746
While posting FI documents, PAN validity is not checked.