@Abu_Hasan, you have introduced complications very late in the discussion that significantly change the situation.
You must understand that the Tax payable account in Manager is designed to offset output VAT versus input VAT. This is what you describe as “Normal Scenario” and is a typical VAT scheme. The resulting balance represents money you owe to the authority (if you assess more VAT to your customers than you pay to your suppliers) or the authority owes you (if you pay more to your suppliers than you assess your customers). But, if that is not your situation, you cannot apply tax codes the same way to sales and purchases.
What you call “Withholding Scenario” is actually two different scenarios. In the first, in which you said you “don’t take rebate, don’t withhold,” the system is not acting like a value added tax at all. Instead, it is like a consumption-based sales tax. You are assessed the tax by your supplier, you pay the supplier, and you have no recovery. In this situation, no tax code should be applied on the line item in the purchase invoice. Rather, the unit price should include the tax amount. By this, I do not mean to check the box that prices are tax inclusive, because that only changes the way the offsetting tax would be calculated. This situation is illustrated by Example 2 in this Guide: https://guides.manager.io/8901.
In the additional scenario, when you “don’t take rebate, but withhold,” the system is also acting as a consumption-based sales tax, not a typical VAT. But in this case, instead of paying the tax to your supplier, you pay it directly to the authority. So again, you should not apply a tax code, because that would offset input VAT against output VAT. Instead, include tax in the unit pricing. Withhold an amount that backs the tax out of your payment to the supplier. Using your earlier example:
Purchase price, including 4.5% VAT: 1,20,175
Total purchase invoice balance due: 1,15,000
Note: the withholding is not 4.5% of the purchase price including tax. It is the negative of the tax amount from your supplier’s invoice, which is 4.5% of the untaxed price, or 4.30622% of the price with tax. Hopefully, your supplier will indicate the amount to withhold on its invoice.
In both scenarios included in your “Withholding Scenario,” you will not see the transaction in your Tax Summary or Tax Transactions reports. This is because, from Manager’s perspective, they are not tax transactions affecting the balance of Tax payable. They are just higher-priced purchases. And in the last case, you end up paying part of the purchase price to the tax authority.