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Process documentation Provisions for Taxes on Services Received Locate the document in its SAP Library structure

Purpose

In India, when you come to prepare your financial statements, you are required to make an adjustment entry for any accrued withholding taxes.

That means that if, when you prepare your statements, a vendor has provided you with some services but not yet sent you an invoice, you make an adjustment entry for the taxes that you will withhold on the vendor payment. When you make the entry, you must take into account any tax that you have already withheld on any down payments that you have made.

Once the vendor sends the invoice, you reverse the provision.

Prerequisites

In Customizing for Financial Accounting (FI), you have made the settings under Financial Accounting Global Settings ® Withholding Tax ® Extended Withholding Tax ® Postings ® India ® Provisions for Taxes on Services Received.

Process Flow

  1. A clerk Structure linkenters a purchase order for services to be provided.
  2. A vendor provides you with some services on 25 January, and the clerk Structure linkenters the service receipt in the system accordingly.

    3. The system then automatically creates the following accounting document:

    This graphic is explained in the accompanying text

  3. At month-end, the vendor has not sent you an invoice. You will be required to withhold tax on the payment, so you enter a provision for the withholding tax.

    4. The system creates an accounting document as follows:

    This graphic is explained in the accompanying text

    You can now prepare your financial statements correctly.

  4. On 7 February, the vendor sends you the invoice, and you Structure linkenter it in the system.

    5. When you enter the invoice, the system automatically calculates how much tax you have to withhold when you pay the vendor. It does not clear the provision against the invoice, so at this moment your accounts are actually incorrect, because they have two entries for the same amount of withholding tax.

    This graphic is explained in the accompanying text

  5. In the evening, you reverse the provision.

The system creates the following accounting document:

This graphic is explained in the accompanying text

By reversing the provision, you put your accounts in order again.

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