Understanding Tax Rules

During tax calculation, the system applies tax rules, such as assessable value, abatement, exceptions, exemptions, and rounded taxable.

Abatement rules apply to excise duty tax when there is an MRP and service tax. Assessable value rules apply to excise duty and service taxes. Rounded taxable rules applies to TCS.

The Tax Rules Setup program (P75I072) enables you to define tax rules and parameters. The system provides the flexibility to use different tax rules for any combination of item and customer groups. The system can also apply the same tax rule for multiple item and customer groups. This example shows the setup of the tax rules in the Tax Rules Setup program:

Tax Rule Name	Description	Tax Rule Type	Rule Percentage	Rule Value	Notification Number
ABAT40	Abatement 40%	Abatement	40		12345
ABAT30	Abatement 30%	Abatement	30		56789
EXAS	Excise Assessable Value	Assessable Value		1500
SALEAS	Sales Assessable Value	Assessable Value		1800
EXEMP1	Exemption	Exemption			1234567890
ROUNDTAXB	Round Taxable Basis for TCS	Rounded Taxable		100

After you set up the tax rules, you use the tax rules to enter the adjustment detail information. For example:

Adjustment Name	Description	Factor Value	Basis Code	Object Library (Tax Rule)	Comments
BED	Basic Excise Duty	16	8	ABAT40	Depending on the item and customer group combination, the system uses different rules to calculate the BED tax type.
BED	Basic Excise Duty	16	8	ABAT30	Depending on the item and customer group combination, the system uses different rules to calculate the BED tax type.
SRV	Service Tax	10	8	ABAT40	The system can apply the same tax rule to multiple tax types.
BED	Basic Excise Duty	16	8	EXAS	Depending on the item and customer group combination, the system uses different tax rules to calculate the tax type.
SRV	Service Tax	9	8	EXEMP1	Depending on the item and customer group combination, the system uses different tax rules to calculate the tax type.

The system performs these tasks to calculate tax:

1. Accesses the Tax Rules Setup table (F75I072) with the Object Library tax rule name.

2. Selects the record that has Actual Shipment Date in the Sales Order Detail table (F4211) between the effective and expiration dates on the tax rule.

3. Calculates the tax by using a tax rule type:

   • Abatements: Tax per unit = Item Current Price × (1 − (Abatement Percent ÷ 100)) × (Factor Value ÷ 100)

   • Assessable Value: Tax per unit = Rule Value × (Factor Value ÷ 100)

   • Exception: Tax per unit = Item Current Price × (Factor Value ÷ 100)

   • Exemption: Tax per unit = Item Current Price × (Factor Value ÷ 100)

   • Rounded Taxable: Tax per unit; The system calculates this in the following way:

     1. Calculates Extended Taxable amount (Item Current Price * Item Quantity).

     2. Rounds the Extended Taxable amount according to the Tax Rule definition.

     3. Calculates Extended Tax by applying the Tax Rate (Factor Value) to the rounded Extended Taxable amount.

     4. Calculates Tax per unit (Extended Tax / Item Quantity).

4. Displays an error if no record is found.

Important: Do not change or delete the tax rules that the system uses to calculate taxes. The system uses the information to print invoices, create accounts receivable reports, and other order-to-cash information.