The Inclusive Tax feature is applicable to all modules of Oracle Financials for India.
In some business scenarios the purchase price is inclusive of all taxes or some taxes, Oracle Financials for India supports both scenarios. This means that the transaction price on documents such as purchase or sales orders is inclusive of all taxes applicable to the transaction.
The Inclusive tax feature of Oracle Financials for India supports tax inclusive computations in the Order to Cash and Procure to Pay cycles.
You can define a tax as inclusive in the tax code definition and attach this code as a part of tax categories. For transactions having these tax codes, the tax amounts are back calculated and reflected on the respective transaction. This enables correct computing, tracking, and accounting of inclusive taxes for financial and statutory reporting.
Prerequisites:
To use the Inclusive tax feature, you must:
Set Account Inclusive Tax to Yes on the TDS Period window.
This one time setup of Account inclusive taxes determines whether transfer inclusive tax accounting into GL separately or not.
Some additional accounting entries are passed into GL interface tables directly if Account inclusive taxes option is set to Yes.
Tax Definition Window
This window is used to define new taxes. This window shows details such as tax name, tax type , tax rate, credit percentage, and vendor information. In this window, a new check box, Inclusive Tax Flag, is introduced. This check box is editable only for new tax codes. For existing tax codes, this check box would be read only.
Note: Inclusive taxes cannot be created until the setup to account inclusive taxes is completed in the TDS Years window.
Inclusive Tax Option on Various Windows and Reports
The following windows include inclusive tax field:
Service Tax Repository
Purchasing
Tax Details
Requisitions
Tax Details
Quotations
Purchase Orders
Receipts
iProcurement
Stores
Requisitions
Tax Details
iSupplier
Purchase Orders
Tax Details
Order Management
Sales Order
Tax Details
Fulfil orders
RG23 D Register Entries
Project Billing
Invoice
Invoice Review
Receivables
Enter Transaction
Note: Inclusive taxes also impacts Project Costing and Inventory Item Costing. All inclusive taxes are automatically considered for costing by the base costing program because they are part of the item price. If there are any inclusive taxes which are of recoverable in nature, the costing gets updated correctly by inserting a negative line.
The inclusive tax details are shown in the following India Localization reports:
India - Total Sales report in Receivables displays the sum of non inclusive tax of AR transactions.
India - Commercial Invoice for AR report in Receivables displays the non inclusive taxes of AR transactions in detail.
India - Excise/VAT Invoice Template: report in Order Management displays the non inclusive taxes of Sales Orders in detail.
The Tax code definition window includes a flag to identify a Tax as Inclusive. This ensures that the current logic of three-way defaulting of taxes is automatically used for Inclusive Taxes.
The Inclusive option is editable only when adding a new Tax code. Once the tax code is saved, the checkbox is grayed out. You cannot change a tax code from inclusive to exclusive and vice versa.
In case, you need to change the tax code type, retire the tax code with an end date. Then, define a new tax code with required inclusive or exclusive flag. You can use the current mass tax changes feature supported by Financials for India to modify newly created documents with revised tax code.
Determining Base Tax Amount
Base Tax Amount is determined based on precedence. For Inclusive tax computation, the following formulae are used to determine the base tax amount. For all the precedence greater than zero, the line number entered in precedence get added to the Base tax Amount.
For Excise Regime, zero precedence represents the Excise Assessable Price List respectively when defined. For all other Tax regimes and types, zero precedence represents Base Selling or Purchase Price. The Base Selling or Purchase Price is used for Excise Regime also when the Assessable price lists has not defined. This remains same for both exclusive and inclusive taxes. For Adhoc and UOM based taxes, there is no option of entering the precedence and the same would continue for inclusive taxes.
Determining Tax Rate
This defaults from the Tax definition window.
Determining Tax Amount
For Exclusive Taxes, tax amount is derived as, Base Tax Amount x Tax rate / 100. This is applicable for taxes that have the Inclusive flag at tax code definition as Null and also for taxes that are based on Excise Assessable Price List and VAT Assessable Price List.
Adhoc Taxes
Adhoc tax is a tax amount that is directly entered on a transaction and has base tax amount as zero. Tax Rate and precedence are not applicable for such taxes. When the Tax is marked as inclusive, there is no impact on tax calculation of this tax. For determining the base tax amount, the amount determined by normal computation is divided by base tax amount to determine the factor that needs to be taken into account for computation of the derived base tax amount.
The Adhoc Tax cannot be defined with any precedence for exclusive taxes and the same continues for Inclusive taxes. The approach marks the tax code as inclusive. Adhoc Tax does not have any rate associated with it. The only difference between exclusive and inclusive Adhoc tax are the process that follows for adding or not adding of such tax line in the base document and handling the Financial reporting and costing. You can add Freight type of Taxes in Post shipment scenario. Such Freight can be either based on inclusive or exclusive rate, UOM based or Adhoc.
UOM Based Taxes
This tax is based on unit of measure of the transaction and the unit of measure rate. When the same are inclusive, there is no impact on tax calculation, no backward calculation for this tax. The UOM Based Taxes cannot be defined with any precedence's for exclusive taxes and the same would continue for Inclusive taxes. The approach would be to Mark the tax code as inclusive. UOM based tax has a rate associated with it but the same is based on the Quantity and not the price For determining the base tax amount, the amount determined by normal UOM based computation would be divided by base tax amount to determine the factor that needs to be taken into account for computation of the derived base tax amount.
The only difference between exclusive and inclusive UOM based tax would be in the process that we follow for adding or not adding of such tax line in the base document and handling the Financial reporting and Costing.
Tax Category Definition
Against each Tax code selected, the Inclusive Flag is displayed. This display is based on the Tax Code definition carried out.