For Example:- ABC Company receives bill form VRG Builders & Developers for works contract given. 

Total Value of the Bill received from VRG Builders & Developers is Rs. 58925/-
Purchase cost of Work contract is Rs.54000/-
Vat @ 5% is Rs. 2700/-
Service Tax @ 4.12% is Rs.2225/-

TDS @ 1% to be Deducted on the above Bill

Steps to record the Works Contract transactions are:

Step 1: Create Ledger Masters

Step 2:  Record Purchase Voucher (Account Invoice Mode)

Step 3: Record a Payment Voucher (payment to party)

Step 4: Check TDS Computation

Step 1: Create Ledger Masters

i. Party Ledger (supplier): Create VRG Builders & Developers ledger > under Sundry Creditors > enable the option Is Service Tax Applicable to Yes > enable the option Is TDS Deductable to Yes > in Deductee Type field select Company - Resident

ii. Purchase Ledger: Create Works Contract Purchases ledger > under Purchase Accounts 

• Enable the option Is Service Tax Applicable to Yes > in Category Name screen select Works Contract Service 
• Enable the option  Used in VAT Returns to Yes > select VAT/Tax Class as Purchases @ 5%
•  Enable the option Is TDS Applicable to Yes > in Nature of Payment field select Payment to Sub-Contractors

iii. VAT Ledger: Create Vat @ 5% ledger > under Duties & Taxes > select VAT in Type of Duty/Tax field > VAT/Tax Class as Input VAT @ 5% > enable the option Is TDS Applicable to Yes > select the Nature of Payment as Payment to Sub-Contractors

iv. Service Tax Ledger: Create Service Tax @ 4.12% ledger > under Duties & Taxes > select Service Tax in Type of Duty/Tax field > Category Name as Works Contract Service > enable the option Is TDS Applicable to Yes > select the Nature of Payment as Payment to Sub-Contractors

v. TDS Ledger: Create TDS Ledger > under Duties & Taxes > select TDS in Type of Duty/Tax field > Nature of Payment as Payment to Sub-Contractors

Step 2:  Record Purchase Voucher (Account Invoice Mode)

Go to Gateway of Tally > Accounting Vouchers > F9: Purchase

Note: In F12: Configuration set the option Allow Alteration of TDS Nature of Payment in Expenses to Yes

• In the Party A/c Name field select Party Ledger
• Under Particulars select the Purchase Ledger and specify the amount as 54,000 and press enter to view TDS Nature of Payment Details screen.
• In TDS Nature of Payment Details by default the Nature of Payment selected in the ledger will be displayed. In Assessable Value field accept the default amount of Rs.54,000

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• Under Particulars select the VAT ledger, VAT amount will be calculated and displayed automatically. Press enter to view TDS Nature of Payment Details screen, accept the default details.
• Under Particulars select Service Tax Ledger. In the Service Tax Computation screen change the service tax percentage to 4% (as service Tax charged on works contract is 4%). Service tax will be calculated based on the Service Tax Rate defined. In TDS Nature of Payment Details screen, accept the default details.

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• Under Particulars select TDS ledger and press enter to view the TDS Details screen. Observe TDS is calculated on the Total Amount (Work Contract Purchase Value + VAT + Service Tax = 58924.80).

Purchase Entry is displayed as shown

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Note: TDS deducted is displayed with Negative Sign.

In Bill-wise Details screen select the reference details as shown

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Completed Purchase Voucher is as shown below

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Step 3: Record a Payment Entry

Make the payment to the party and the payment voucher will be dispalyed as shown

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Step 4: Check TDS Computation

Go to Gateway of Tally > Display > Statutory Reports > TDS Reports > Computation

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Similarly you can check Input Credit Form and VAT Computation reports to view the details of Service Tax and VAT