Configuring TDS in Tally: Complete Guide
Introduction to TDS in Tally
Tax Deducted at Source (TDS) is an indirect tax levied on income on making certain payments such as salaries, payments to contractors and professional services. In India, the TDS mechanism enables the government to collect tax at the source of income, ensuring consistent revenue. One of the most widely used accounting software, Tally ERP 9 provides features to effectively configure and manage TDS. This blog post guides you through the process of configuring TDS in Tally.
What is TDS and why is it important?
TDS is applicable when certain charges exceed the prescribed limit. For example:
- Salary
- rent
- Professional fees
- Payment of Contractor
It is the responsibility of the payer to deduct the TDS at the time of payment and deposit it with the government. The payee receives the payment after deducting the TDS and the amount deducted is credited against their tax liability for the assessment year.
In Tally, TDS configuration ensures that your business is compliant with tax deduction rules and simplifies the process of reporting and depositing the amount deducted.
Step 1: Enable TDS in Tally
To start configuring TDS in Tally, first you need to enable TDS functionality. Follow these steps:
- Open Tally ERP 9 and go to Gateway of Tally.
- From the menu select F11: Features.
- In the Features menu, select F3: Legal & Tax.
- A list of legal properties appears. In this list, select TDS (Tax Deducted at Source) and set it to Yes.
- Press Enter to accept the changes.
Once TDS is enabled, Tally allows you to create TDS related ledgers, apply TDS to transactions and generate TDS reports.
Step 2: Create TDS Ledgers
Before starting to use TDS in Tally, you need to create required TDS ledgers. These ledgers are used to record TDS transactions.
- Go to Gateway of Tally and select Account Information.
- Select Ledger under Create option.
- Create the following TDS ledgers:
- TDS Payable (For TDS payable by you to Govt.)
- TDS receivable (for TDS received by you on behalf of your business)
- TDS on expenditure (based on nature of expenditure like TDS on professional fees, contractor payments etc. for each TDS category)
Here is an example of creating a TDS Payable Ledger:
- Name: TDS payable
- Under: Duties and Taxes
- Type of Tax: TDS
- Tax Type: (Select the appropriate type like Salary, Contractor, Professional)
Repeat the same procedure for all TDS categories applicable to your business. You will have separate ledgers for each type of TDS like TDS on contractors or TDS on salaries.
Step 3: Set the TDS rate and calculation method
Each type of payment has a specific TDS rate. Tally allows you to configure the TDS rate for each ledger based on the payment type.
- Go to Gateway of Tally > Accounts Information > Ledger > Alter.
- Select the TDS ledger you created earlier (eg, TDS on contractors).
- In Ledger Details, you will see a field for Line Details. Here, you need to configure the TDS rate.
- Select the appropriate tax category (for example, TDS on contractors).
- Set the TDS rate according to the tax bracket (eg, 1%, 2% or 10% depending on the nature of the payment).
- When you select this ledger during a transaction, Tally automatically calculates TDS based on the transaction amount.
Step 4: Applying TDS for transactions
Once the TDS ledgers are created and the rates are set, you can apply TDS to your transactions. Here’s how to apply TDS on payments like professional fees or contractor payments:
- Create a voucher entry by pressing F7 (Payment) or F5 (Receipt) as applicable.
- In the payment/receipt voucher, select the appropriate party ledger (eg, contractor or professional).
- Under Specifications, enter the amount to be paid and select the TDS ledger associated with that payment (eg, Contractors TDS).
- Tally automatically calculates TDS based on the rate you configured earlier. It reduces the amount paid by the amount of TDS showing the net amount payable.
- Press Enter to save the transaction.
This ensures that TDS is automatically calculated and deducted on all payments subject to TDS.
Step 5: Filing TDS Payment to Govt
After deducting the TDS, the amount has to be deposited with the government. Here’s how to record it in Tally:
- Go to Gateway of Tally > Accounting Vouchers > Payment Voucher (F5).
- Select the payment bank account.
- In the details section, select the ledger to which TDS is payable (the amount of TDS payable will be automatic).
- Enter the payment amount and save the transaction.
This ensures that TDS is paid to the government and the balance in the TDS payable ledger is updated accordingly.
Step 6: Generating TDS Reports
Tally provides several reports to track TDS related transactions, including TDS payable and TDS payable to the government. Here is how to generate TDS statements:
- Go to Gateway of Dolly and select the scene.
- Select Statutory Reports > TDS Reports.
- Select TDS Summary or TDS Payable report to view TDS Deducted, Paid and TDS Due details.
These reports help you track your TDS debts and ensure timely compliance with tax laws.
Step 7: TDS Return Generation (Form 24Q and 26Q)
Tally ERP 9 allows you to generate TDS returns for filing with Govt. This can be done using the TDS reports generated above. Follow these steps:
- Go to Gateway of Tally > Display > Statutory Reports > TDS Reports.
- Select the appropriate return form (Form 24Q for salaried persons and Form 26Q for others).
- Tally generates returns in a prescribed format that you can upload to a government portal (eg, NSDL).
Conclusion
Configuring TDS in Tally is a simple process to ensure your business is compliant with tax regulations in India. By enabling TDS, creating necessary ledgers, applying TDS to transactions and generating TDS statements and returns, you can streamline the tax deduction process. Tally makes it easy for businesses to manage their TDS obligations, ensuring timely tax payment and filing. With proper TDS configuration in Tally, you can avoid penalties and manage smooth accounting operations for your business.
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