ERPNext TDS Setup: Section 393 Codes & Lower Deduction

TDS in ERPNext works through one document: the Tax Withholding Category. You define the rate and the thresholds once, attach the category to a supplier, and ERPNext deducts the tax on the purchase invoice and tracks what you owe the government. The tricky part is not the screen. It is choosing the right categories, thresholds and dates, and since 1 April 2026 it is also about the new section numbers.

From that date the Income-tax Act, 2025 replaced the Income-tax Act, 1961. TDS on non-salary payments to residents now sits in section 393, and TDS on salary sits in section 392. Older names such as 194C, 194J and 194I are still how most accountants speak, so you will see both in this guide.

This post is for accounts managers, finance heads and ERPNext administrators in India. It covers setup, a worked example, lower deduction certificates and the common mistakes. For the invoicing side of compliance, read our ERPNext GST setup guide.

Important: this is a configuration guide, not tax advice. Rates, thresholds and applicability depend on the payee, the payer and the facts, so confirm each category with your chartered accountant.

What changed on 1 April 2026

The Income-tax Act, 2025 came into force for tax years starting 1 April 2026. For TDS, three things matter to an ERPNext user:

• Section 393 is a set of tables. Instead of one section per payment type, section 393(1) lists each payment, the payer, the rate and the threshold in a table. Old sections 193 and 194 to 194T and 195 are consolidated there.
• Payment codes are numeric. The ERPNext documentation gives these examples: contractor payments are code 1023 for individuals and HUF and 1024 for others, and professional fees are code 1027.
• Returns changed names. According to the Income Tax Department's guidance, quarterly salary TDS returns are filed on Form 138 (earlier 24Q) and non-salary resident TDS returns on Form 140 (earlier 26Q).

Which Act applies to a payment depends on the earlier of the credit or the payment date, so invoices credited before 31 March 2026 stay under the 1961 Act. Keep that in mind when you reconcile the first quarter of FY 2026-27.

Common TDS rates in section 393(1)

Below are the rates most Indian SMEs meet every month, taken from the section 393 table on the Income Tax Department website and a published section-wise chart. Always verify against the current table before configuring, because Finance Acts change rates and thresholds.

Old section	Nature of payment	Rate	Threshold
194C	Payment to a contractor	1% if an individual or HUF, 2% otherwise	Rs 30,000 per payment or Rs 1,00,000 in the year
194J	Fees for technical services, call centre	2%	Rs 50,000
194J	Professional fees, other royalty, non-compete fees	10%	Rs 50,000
194I	Rent of plant, machinery or equipment	2%	Rs 50,000 for a month or part of a month
194I	Rent of land, building (including factory building), furniture, fittings	10%	Rs 50,000 for a month or part of a month
194H	Commission or brokerage (by a specified person)	2%	Rs 20,000
194Q	Purchase of goods by a buyer with turnover above Rs 10 crore	0.1% on the amount above Rs 50 lakh	Rs 50 lakh

Section 393(1) states that, once the threshold is crossed, tax is deducted on the entire amount, not only on the excess. That matters for one ERPNext setting we cover below.

Step 1: Install or update the India Compliance app

TDS categories for India come from the India Compliance app. According to the ERPNext documentation, 28 Tax Withholding Categories are predefined for Indian statutory requirements. For FY 2026-27, update India Compliance to version 16.3.1 (for ERPNext v16) or 15.27.1 or later (for ERPNext v15). The update:

• renames existing categories to descriptive names, for example "TDS - 194C - Company" becomes "Payment to Contractors (Others) - Company";
• maps each category to its new section code and keeps the old section in a read-only field called Old Income Tax Section;
• adds the new categories, such as Director Remuneration and E-Commerce Participant, and the FY 2026-27 rates.

You do not need to reassign categories on your suppliers after the update. Open Tax Withholding Category and check the rates for FY 2026-27 to confirm. If you are choosing between ERPNext v15 and v16 at the same time, read our ERPNext v16 features and upgrade guide.

Step 2: Review each Tax Withholding Category

Go to Accounting, then Taxes, then Tax Withholding Category. For every category you use, check these fields:

Field	What to set
Rates (From Date, To Date)	One row per effective date range and rate. Current ERPNext uses dates instead of the older Fiscal Year field. Keep ranges continuous and avoid overlaps
Single Transaction Threshold	The per-payment limit, for example Rs 30,000 for contractors
Cumulative Transaction Threshold	The limit across the year, for example Rs 1,00,000 for contractors
Deduct Tax On Basis	Gross Total or Net Total. Choose with your CA, especially where GST is shown separately on the invoice
Only Deduct Tax On Excess Amount	Leave off for most Indian categories, because section 393 deducts on the entire amount once the threshold is crossed
Accounts	The TDS Payable account for each company. The account must belong to that company

Do not edit the standard rate rows casually. Add a new dated row when a rate changes, so that old invoices still calculate with the rate that applied on their date.

Step 3: Prepare the supplier master

Open each supplier that is subject to TDS and set the Tax Withholding Category on the Tax tab. Also enter the supplier's PAN, because the lower deduction certificate feature needs a supplier with a valid PAN. A supplier who is both a contractor and a professional needs a clear decision on which category applies to which invoice, so keep separate supplier records or separate items when the nature of payment differs.

Step 4: Deduct TDS on the purchase invoice

Create a Purchase Invoice for the supplier. ERPNext shows a checkbox for tax withholding. It is labelled "Apply Tax Withholding Amount" in older documentation and "Consider for Tax Withholding" in current documentation, so look for the one in your version. When it is ticked, ERPNext evaluates the category, the dates, the thresholds and earlier transactions, and adds a negative tax row to Taxes and Charges.

Example with illustrative figures: a contractor company that is not an individual or HUF sends an invoice for Rs 1,00,000. At 2%, ERPNext deducts Rs 2,000 as TDS and the supplier is payable Rs 98,000. The Rs 2,000 sits in the TDS Payable account until you deposit it. The Tax Withholding Entries table on the invoice shows the base, rate and amount, so your auditor can see how it was calculated.

When a supplier is paid an advance before the invoice, ERPNext can also deduct on the Payment Entry. Use that option carefully and check the entry before submitting, so TDS is not deducted twice when the invoice arrives.

Step 5: Lower or nil deduction certificates

A supplier may hold a certificate that allows a lower rate or no deduction. In India Compliance, create a Lower Deduction Certificate with the certificate number, section code, fiscal year, supplier, valid-from and valid-up-to dates, the rate on the certificate and the certificate limit. While the certificate is valid and within its limit, ERPNext uses the certificate rate instead of the category rate.

Set a reminder before the validity ends. Once it expires or the limit is used up, invoices revert to the normal category rate, which can surprise a supplier.

Step 6: Report, deposit and return

• TDS Payable Monthly report: search for it in ERPNext to see the deductions by supplier and section for a period. Use it to prepare the challan.
• Deposit: record the payment to the government against the TDS Payable account with a Payment Entry or Journal Entry, so the liability clears.
• Return: the quarterly statement (Form 140 for non-salary TDS from FY 2026-27) is normally prepared in your accountant's return utility from the report data. Check with your CA how your return is generated and whether any export is needed.
• TCS on sales: for TCS on customers, a cumulative threshold is required. To collect TCS on every invoice, the ERPNext documentation says to set the cumulative threshold to 1.

Common TDS mistakes in ERPNext

• Wrong category on the supplier. A rent supplier tagged as a contractor deducts at the wrong rate for months. Review the supplier list once a quarter.
• Overlapping rate rows. Two rows that match the same date make ERPNext pick an unexpected rate. Keep dates clean.
• Threshold confusion. People often set only the single-transaction threshold and forget the cumulative one, so small repeated invoices never trigger TDS.
• Missing TDS Payable account. If a company has no account on the category, the deduction cannot post. Add the account for every company.
• Manual overrides. ERPNext lets users ignore the threshold or edit tax withholding entries. Restrict this to a senior accountant and record the reason.
• Ignoring the transition. Mixed invoices around 1 April 2026 may need old-Act and new-Act treatment. Ask your CA before you close Q1.

Good TDS also depends on clean masters and a tidy chart of accounts. Our posts on tax management in ERPNext and the chart of accounts help here.

How Nexeves helps with TDS in ERPNext

We review your supplier list, map each payment type to the right category, load thresholds and certificates, test the reports with your accounts team and train them on month-end. See our ERPNext implementation services for the full approach, or our post on ERPNext implementation cost in India to budget the work.

Frequently asked questions

Does ERPNext calculate TDS automatically?

Yes. After you assign a Tax Withholding Category to a supplier and tick the tax withholding checkbox on the purchase invoice, ERPNext calculates TDS from the rate and thresholds and adds it to the taxes table.

What is section 393 of the Income-tax Act 2025?

From 1 April 2026, section 393 is the main TDS provision for non-salary payments, arranged as tables that replace the old sections 193, 194 to 194T and 195. TDS on salary is in section 392.

Do I need to reassign TDS categories after updating India Compliance?

No. According to the ERPNext documentation, the update renames and maps existing categories and you do not need to reassign them on suppliers. Check the FY 2026-27 rates afterwards.

How do I apply a lower deduction certificate in ERPNext?

Create a Lower Deduction Certificate in the India Compliance app for the supplier, with the section, validity dates, rate and limit. ERPNext then uses that rate on invoices while the certificate is valid.

Which report shows TDS to deposit?

The TDS Payable Monthly report lists deductions for a period. Use it to prepare the challan and to reconcile the TDS Payable account.

Can ERPNext file my TDS return?

ERPNext records and reports the deductions. The statutory quarterly return is usually prepared with your accountant or a return utility, so confirm your process with your CA.