## Zoho Inventory Documentation Index

Access the complete documentation index at:
https://www.zoho.com/ke/inventory/llms.txt

Use this file to discover all available documentation pages before proceeding.

# Withholding Tax

Withholding tax is a direct tax deducted at source by the payer on certain types of payments, such as interest, dividends, royalties and management fees, made to residents or non-residents. The payer remits the withheld amount directly to the Kenya Revenue Authority (KRA) on behalf of the payee.

In Zoho Inventory, you can enable withholding tax, apply it to invoices and bills at the line-item level and record payments that account for the withheld amount.

**Scenario:** Patricia runs a consulting firm. She creates an invoice for KES 170 with a withholding tax of KES 22 applied across two line items. Her customer deducts the withholding tax at the time of payment and remits it directly to the KRA. Amara uses the withholding tax feature in Zoho Inventory to track the tax deducted, record the net payment received, and ensure her records stay compliant with KRA requirements.

## Enable Withholding Tax

Before applying withholding tax to your transactions, you need to enable it. Here’s how:

*   Go to **Settings** in the top right corner.
*   Navigate to _Organization Settings_.
*   Select **Withholding Tax** under _Taxes and Compliance_.
*   Navigate to **Withholding Tax Settings**.
*   Slide the toggle to enable **Withholding Tax**.
*   Select for whom you want to enable withholding tax in the _Enable Withholding Tax Settings For_ field. You can choose **Customers**, **Vendors** or both.
*   Click **Save**.

Withholding tax will now be enabled for your organisation.

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## Create a Withholding Tax Rate

To create a new Withholding tax rate:

*   Go to **Settings**.
*   Select **Withholding Tax** under _Taxes and Compliance_.
*   Navigate to **Withholding Tax Settings**.
*   Click **\+ New Rate** and in the pop-up that appears:
    *   Enter the **Withholding Tax Name** and **Withholding Tax Rate**.
    *   Select the **Tax Type**.
    *   Click **Save**.

![Create a Withholding Tax Rate](/ke/inventory/help/images/settings/withholding-tax/create-witholding-tax.png)

You can now use the newly created withholding tax rate in your transactions.

**Note:** For a complete list of applicable withholding tax types, refer to the [KRA’s official website](https://www.kra.go.ke/individual/filing-paying/types-of-taxes/individual-withholding-tax).

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## Enable Withholding Tax for Customers and Vendors

To enable withholding tax for a customer:

*   Go to _Sales_ on the left sidebar and select **Customers**.
*   [Create](https://www.zoho.com/ke/inventory/help/contacts/contacts-overview.html#create-customer) or [edit](https://www.zoho.com/inventory/help/contacts/contacts-overview.html#edit-contact) a customer.
*   In the _Other Details_ section, check the **Enable Withholding Tax for this Customer** option.

![Enable Withholding Tax for Customers](/ke/inventory/help/images/settings/withholding-tax/enable-wt-customers.png)

*   Click **Save**.

Now, withholding tax will be enabled for the customer.

To enable withholding tax for a vendor:

*   Go to _Purchases_ on the left sidebar and select **Vendors**.
*   [Create](https://www.zoho.com/ke/inventory/help/contacts/contacts-overview.html#create-customer) or [edit](https://www.zoho.com/inventory/help/contacts/contacts-overview.html#edit-contact) a vendor.
*   In the _Other Details_ section, check the **Enable Withholding Tax for this Vendor** option.

![Enable Withholding Tax for Vendors](/ke/inventory/help/images/settings/withholding-tax/enable-wt-vendor.png)

*   Click **Save**.

Now, withholding tax will be enabled for the vendor.

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## Apply Withholding Tax to Invoices

When you create an invoice for a customer for whom you have enabled withholding tax, you can apply the applicable withholding tax rate to each line item. The customer will deduct the withholding tax from the payment and remit it to the KRA.

To apply withholding tax for invoices:

*   Go to _Sales_ on the left sidebar and select **Invoices**.
*   [Create](https://www.zoho.com/ke/inventory/help/invoice/#create-invoice) or [edit](https://www.zoho.com/ke/inventory/help/invoice/more-actions.html#edit-invoice) an invoice.
*   In the _Items_ table, select the applicable **Withholding Tax** rate for each line item from the withholding tax dropdown.

![Apply Withholding Tax to Invoices](/ke/inventory/help/images/settings/withholding-tax/select-wt-invoices.png)

*   The _Withholding Tax_ section below the total displays each applicable withholding tax type with the rate and amount, the total withholding tax deducted and the adjusted _Balance Due_.

![Withholding Tax section](/ke/inventory/help/images/settings/withholding-tax/wt-section-invoice.png)

*   Click **Save and Send** or **Save as Draft** to send it later.

The invoice will be created and sent to your customer. The customer will deduct the withholding tax amount from the payment and remit it to the KRA.

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## Apply Withholding Tax to Bills

If you are a withholding agent, you can create a bill for your vendor in Zoho Inventory and apply withholding tax at the line-item level. When you record payment for the bill, you deduct the withholding tax amount and remit it to the KRA.

To apply withholding tax for bills:

*   Go to _Purchases_ on the left sidebar and select **Bills**.
*   [Create](https://www.zoho.com/inventory/help/purchase-orders/bills.html#creating-a-bill) or [edit](https://www.zoho.com/inventory/help/purchase-orders/bills.html#other-options) a Bill.
*   In the _Items_ table, select the applicable **Withholding Tax** rate for each line item from the withholding tax dropdown.

![Apply Withholding Tax to Bills](/ke/inventory/help/images/settings/withholding-tax/select-wt-bills.png)

*   The _Withholding Tax_ section below the total displays each applicable withholding tax type with the rate and amount, the total withholding tax deducted, and the adjusted **Balance Due**.

![Withholding Tax section](/ke/inventory/help/images/settings/withholding-tax/wt-section-bill.png)

*   Click **Save as Draft** or **Save as Open**.

The bill will be created with the withholding tax applied.

**Note:** Applying withholding tax to an invoice or bill does not create a journal entry, alter the total transaction amount, or appear on the printed PDF. The withheld amount is displayed in the Balance Due section for reference only. The actual deduction and journal entry are recorded only when withholding tax is selected at the time of recording payment.

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## Record Withholding Tax Payment

After applying withholding tax to your invoices or bills, you need to record the withheld amount during payment. This ensures that the correct net amount is recorded and the withholding tax is posted to the appropriate account.

### Record Invoice Payment with Withholding Tax

When recording payment for an invoice with withholding tax, you can also record the deducted withholding tax.

Here’s how:

*   Go to _Sales_ on the left sidebar and select **Invoices**.
*   Select the invoice for which you want to record payment.
*   Click **Record Payment** at the top of the invoice’s _Details_ page, and select **Record Payment** from the dropdown.
*   Enter the required details in the payment page.
*   Select **Yes** next to _Withholding Tax Deducted?_ The **Withholding Tax Amount** will be displayed based on the withholding tax applied to the invoice.

![Record Payment for an Invoice](/ke/inventory/help/images/settings/withholding-tax/wt-payment-invoice.png)

*   Click **Save as Paid**.

The payment will be recorded for the invoice, accounting for the withholding tax deduction.

### Record Bill Payment with Withholding Tax

When recording a payment for a bill with withholding tax, you can also record the deducted withholding tax.

Here’s how:

*   Go to _Purchases_ on the left sidebar and select **Bills**.
*   Select the bill for which you want to record payment.
*   Click **Record Payment** at the top of the bill’s _Details_ page.
*   Enter the required details in the payment page.
*   Select **Yes** next to _Withholding Tax Deducted?_ The **Withholding Tax Amount** will be displayed based on the withholding tax applied to the bill.

**Insight:** If you have selected **No**, the invoice will remain in a _Partially Paid_ status. Once the customer confirms that the tax has been paid to the government, you can record an additional payment for the withheld amount, which will be tracked as withholding VAT credit. A separate Payment Received PDF will be generated for this amount, and the invoice status will be updated to Paid.

![Record Payment for a Bill](/ke/inventory/help/images/settings/withholding-tax/wt-payment-bill.png)

*   Click **Save as Paid**.

The payment will be recorded for the bill, accounting for the withholding tax deduction. Once you remit the withheld amount to the KRA, your vendor will receive confirmation of the payment.

## Apply Withholding Tax to Bulk Customer Payments

When a customer makes a single payment against multiple invoices, you can apply the applicable withholding tax for each invoice within the payment.

Here’s how:

*   Go to _Sales_ on the left sidebar and select **Payments Received**.
*   Click **\+ New** in the top right corner, or select an existing payment and click **Edit**.
*   Enter the required details in the payment page.
*   Under the _Unpaid Invoices_ section, the _Withholding Tax Due_ is displayed for each invoice in the _Withholding Tax_ column.
*   Click **Add Withholding Tax** to include the withholding tax deduction.
*   Click **Clear Withholding Tax** to remove a withholding tax entry.
*   Enter the **Payment** amount for each invoice.

![Apply Withholding Tax to Multiple Customer Payments](/ke/inventory/help/images/settings/withholding-tax/wt-bulk-payment-customer.png)

*   Click **Save**.

The payment will be recorded with the withholding tax amounts for each invoice.

Similarly, you can apply withholding tax to bulk vendor payments by going to _Purchases_ on the left sidebar and selecting **Payments Made**.