As per section 194J (Notification 21/2012), tax is applicable on a software product when it is purchased directly from a producer (first level of purchase), and not applicable (exempt) when it is purchased from a dealer (subsequent purchase). Exempt purchase has to be reported separately in TDS returns Form 26Q.
To do this in Tally.ERP 9, you need to:
● Create two separate TDS nature of payments, one with rate, and another zero rated, for the purchase of software products.
● Record taxable purchase of the software using TDS nature of payment with tax
● Record exempt purchase of the software using TDS nature of payment with zero rate.
If you create masters and record transactions separately, as described above, for purchase of software products, Tally.ERP will:
● Update the values from both transactions in the reports in the normal rate section
● Flag the value from exempt purchase of software products as zero rated in the returns, as per the filing requirements.
To create nature of payment for taxable purchase of software product
1. Go to Gateway of Tally > Accounts Info. > Statutory Info. > TDS Nature of Pymts > Create .
2. Enter the Name of the nature of payment.
3. Enter 194J and 94J in the fields Section and Payment Code , respectively.
4. Set the option Is software royalty? to Yes .
5. Enter the Rate of tax .
6. Enter the amount up to which tax is not applicable for this category, in the field Threshold/exemption limit , if any.
7. Press Enter to save.
Note: Press F12: Configure in the TDS Nature of Payment Creation screen and enable the option Allow Software Royalty? to get the field Is software royalty?
To record taxable purchase of software product
1. Go to Gateway of Tally > Accounting Vouchers > F9: Purchase .
2. Click I : Accounting Invoice to record the invoice in accounting mode.
3. Click F12: Configure .
o Enable the option Allow modifications of Tax Details for TDS?
o Press Ctrl+A to accept.
4. Enter the Supplier invoice no. and Date .
5. Select the ledger of the supplier in the field Party A/c name .
6. Select the ledger, created under Purchase Accounts , under Particulars , and enter the Amount .
7. Press Enter . The Expense Allocation screen appears.
o Select the nature of payment applicable for taxable purchase of software product and press Enter .
8. Select TDS tax ledger under Particulars . The TDS tax amount automatically appears, based on the rate of tax defined in the nature of payment.
9. Press Enter .
10. Enter Narration , if any.
11. Press Enter to save.
Note: In this case, the purchase ledger and TDS ledger are created without selecting a Nature of Payment in the master. The nature of payment is selected during transacting. You can also create ledgers by selecting the respective nature of payment.
To create a nature of payment for the exempt purchase of software product
1. Go to Gateway of Tally > Accounts Info. > Statutory Info. > TDS Nature of Pymts > Create .
2. Enter the Name of the nature of payment.
3. Enter 194J and 94J in the fields Section and Payment Code , respectively.
4. Set the option Is software royalty? to Yes .
5. Enter the Rate of tax as 0% .
6. Set the option Is zero rated? to Yes .
7. Enter the amount up to which tax should not be applied for this category in the field Threshold/exemption limit , if any.
8. Press Enter to save.
To record taxable purchase of software product
1. Go to Gateway of Tally > Accounting Vouchers > F9: Purchase .
2. Click I : Accounting Invoice to record the invoice in accounting mode.
3. Click F12: Configure .
o Enable the option Allow modifications of Tax Details for TDS?
o Press Ctrl+A to accept.
4. Enter the Supplier invoice no. and Date .
5. Select the ledger of the supplier in the field Party A/c name .
6. Select ledger, created under Purchase Accounts , under Particulars and enter the Amount .
7. Press Enter . The Expense Allocation screen appears.
o Select the nature of payment applicable for zero rated purchase of software product and press Enter .
8. Press Enter .
9. Enter Narration , if any.
10. Press Enter to save.
The value from both taxable and exempt transactions will be updated in Form 26Q. However, in the returns file, the value from exempt transaction is flagged with the initial S , indicating software purchase.
