To use tax codes

This functionality is specific for India.

Specify the following details for each type of tax in the Tax Codes by Country (tcmcs0536m000) session:

  • Tax rates of each country.
  • The way the tax must be calculated.
  • Tax authorities to which the tax must be paid.
  • Ledger accounts to which the tax amounts must be posted.
  • The text that must be printed on invoices to which the tax applies.

A tax code is assigned to each tax type. Example, you can use the tax code VAT to indicate value-added tax.

For each tax code, you must select the tax type, which defines the way in which LN handles the tax, and the kinds of tax.

Tax codes by country

You must define the tax codes that apply to the home country and state of each financial company .Use the Tax Codes by Country (tcmcs0536m000) session to link tax codes to the country. You can link the tax codes to the states as described in To define a tax exception.

Example, for custom duty, you set up a single tax code for the entire country irrespective of the state in which the transaction originated. For local taxes, you must set up separate tax codes for each combination of the country (India) and a state.

Single tax code

You can define a singular tax code when a country's / state's type of tax consists of only one tax rate. Use the Single Tax Rates (tcmcs0132m000) session to specify the tax rate, maximum amount and other details.

Multiple tax codes

Define multiple tax codes in the following scenario:

  • Type of a tax consists of several parts that must be paid to different tax authorities.

For each part, you must create a multiple tax code line in the Multiple Tax Code Lines (tcmcs0535m000) session. LN assigns a sequence number to each line.

The tax on the multiple tax code lines can be calculated in the following ways:

  • Parallel
    Individually for each line
  • Cumulative
    Including the tax amounts of previous lines

Next, specify the tax rates for each multiple tax code line in the Multiple Tax Code Lines (tcmcs0535m000) session.

For details, refer to Multiple tax codes - example.

No-tax tax codes

LN cannot create, finalize, and post transactions if tax code is not defined. Therefore, you must define a tax code for transactions that are not subject to taxation. To define the tax code for non-taxable transactions, select the Tax Code for No Tax check box in the Tax Codes by Country (tcmcs0136s000) session.

Zero rate tax codes

Taxable transactions for which taxes are not paid are considered as transactions with a zero tax rate rather than as non-taxable transactions. For such transactions, you must set up tax codes to zero rates.

Example, tax exemption are applicable for the following reasons:

  • Goods or services are not taxable.
  • Goods transfer to or from a specific countries is not taxable
  • Transactions are related to service operations in specific situations.
  • Business partner holds an exempt certificate.

If tax is not levied on a transaction, you must print the following information on the invoice:

  • References to the tax law that states the exception.
  • Business partner's tax exemption certificate number.

Based on the type of tax, you can use a reason code linked to the tax code, or you can link a text to the tax code to hold the information.

Tax ledger accounts and dimensions

For each financial company, you must specify the ledger accounts to which LN must post the tax amounts. For each financial company, use the following sessions:

For invoices, LN derives the dimensions from the financial business partner's group control accounts, when the dimensions are linked to the tax ledger accounts. . For journal vouchers, LN derives the dimensions from the ledger account of the journal.

LN uses the dimensions specified in the Posting Data for Tax Codes (tfgld0171s000) or the Posting Data for Multiple Tax Codes (tfgld0170s000) session, if mandatory dimensions are linked to the tax accounts and the dimensions are not defined for the transaction ledger account. .

Group tax codes

A group tax code is a method to link multiple individual tax codes to a transaction. If Tax Deducted at Source, or Withholding tax, applies to an invoice as well as service tax, you must use a group tax code.

A group tax code must include one tax code of the value added tax (VAT) and one or multiple tax codes of the withholding tax type.

You can only use group tax codes for the following types of transactions:

  • Purchase invoices for cost items and service items. The invoices must not be self-billed.
Item tax codes

Use the following sessions to link default tax codes to items from a specific service department :

  • For sales orders:
    Item - Sales Defaults (tdisa0102s000) and Item - Sales (tdisa0101s000)
  • For purchase orders:
    Item - Purchase Defaults (tdipu0102m000) and Item - Purchase (tdipu0101m000)

For value added tax, in sessions and transactions in which a tax code is required, LN can display the default tax code. If you use the Standard search order, LN retrieves the tax codes from the following sessions, in the following order:

  1. Tax Handling (tctax0138m000)
    The tax code for the tax country and item combination, if specified .
  2. Item - Sales (tdisa0101s000)
    The tax code for the item, if specified.
  3. Tax Handling (tctax0138m000)
    The tax code you define for the tax country and an empty Item field.