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
- Go to:
Home > Accounting > Taxes > Tax Withholding Category
Click New.
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
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
Go to Lower Deduction Certificate list.
Click on New.
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)
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).