GST processing

At transaction time, Oracle ERP Cloud uses tax configuration and determines the tax applicability on each transaction line. Once tax applicability on a given transaction line is determined, applicable tax lines are created.

Each tax line displays tax regime, tax name, tax jurisdiction, tax status, tax rate, tax amount, and other information where applicable. For each tax line, the required distribution lines are created.

Case Study

An organization based in Tamil Nadu (TN) sells and dispatches two different products to one of its customers located in Telangana (TS) for INR 4,460. Assume this transaction is hypothetically subject to a GST at the rate of 18%.

The buyer enters a purchase order in Oracle ERP Cloud Purchasing with these transaction lines:

This table displays the Purchase Order (PO) Lines (Payables Invoicing Match to PO Option):

Line	Item	Unit Price	Quantity	Line Amount	Bill to/ship to State	Ship from State
1	A (Inventory Item)	INR 1.83	1,000	1,830.00	TS	TN
2	B (Inventory Item)	INR 2.63	1,000	2,630.00	TS	TN
Total in INR				4,460.00

The GST is applied after you enter and save the purchase order. As a prerequisite, the GST regime and its required taxes, tax jurisdictions, and tax rates must be previously created either through Rapid Implementation spreadsheet upload or directly in the Tax application before GST can be applied.

Note: Each process requires completion of certain setup tasks. See The Components Used column for the relevant setup for each process.

Tax Determination Process Sequence for GST Calculation

This table displays the sequence of tax determination processes, which Oracle ERP Cloud uses to calculate and apply GST on the transaction:

Order	Process Name	Activities Performed by the Process	Components Used	Result
1.	Determine Applicable Tax Regimes	Identifies the applicable tax regimes.	Based on the location (Country = India) involved in the transaction	Applicable Regime
2.	Determine Place of Supply and Tax Jurisdiction	Identifies the relevant tax jurisdiction and place of supply. Refer to Note 1.	Navigation: GST definition > tax rule defaults > Place of Supply = Bill to/ship to/ First party tax registration Number	Place of Supply – State TS Tax Jurisdiction – State TS
3.	Determine Tax Applicability	Evaluates taxes based on any tax applicability rule for each tax.	Tax Applicability Rules Tax conditions: Geography If the qualifier Ship From state TS Is not equal to Bill To/Ship To/First-Party Tax Registration Number state TN, then apply Interstate tax. Geography If the qualifier Ship From state TS is equal to Bill To/Ship To/First party tax registration state TN, then apply Intrastate tax.	GST Applicable
4.	Determine Tax Registration	Determines the party type used to derive the tax registration for each applicable tax. Refer to Note 2.	Navigation: GST definition > tax rule defaults > tax registration = Ship from- party	Ship from party
5.	Determine Tax Status	Considers tax statuses of the applicable taxes.	Define the tax status for GST as Standard and set it as default tax status. Navigation: GST definition > tax rule defaults > Indirect defaults > tax status= Standard	Standard
6.	Determine Tax Rate	Consider the tax rate(s) of each applicable tax status associated with the applicable tax.	Tax Rate Rules Tax conditions – Product Inventory Linked (Qualifier Level 1 = HSN Code)	Applicable GST rate – 18%
7.	Determine Taxable Basis	Determines the taxable basis on which the tax rate for each tax is applied.	Standard taxable basis formula = STANDARD_TB	Taxable Basis = Line Amount, i.e. in this case, the two line amounts are 1,830 and 2,630.
8.	Calculate Taxes	Identifies the tax calculation formula. Calculates taxes using the tax calculation formula.	Standard tax calculation formula = STANDARD_TC	Taxable Basis * Tax Rate 1,83018% + 2,63018% = 329.40+ 473.40 = 802.80
9.	Determine Tax point Basis	Identifies the tax point basis for taxes to be recognized and accounted. Refer Note 3.	Invoice	Recoverable taxes and tax liability accounted on Invoice
10	. Determine Recovery Rate	Determines tax recovery rates, tax recoverable amounts, and nonrecoverable tax amount amounts. Refer to Note 4.	For a GST input tax credit, define a 100% tax recovery rate of GST STANDARD RECOVERY and select a default tax recovery rate. Navigation: GST definition > tax rule defaults > Indirect defaults > Tax recovery rates > GST STANDARD RECOVERY	Tax Recoverable Amount = Tax Amount * 100% = (329.40100%) + (473.40100%) = INR 802.80

Here are some notes:

The Determine Place of Supply process identifies the applicable place of supply, which is the location where the supply of goods or services is deemed to have taken place for a specific tax. Oracle ERP Cloud identifies the tax jurisdiction for the location that corresponds to the place of supply.
You can also use First-Party Tax Registration Number as the determining factor assigned to legal reporting unit of supplier facing entity to default place of supply.
Set up tax registrations for customers and suppliers.
Navigate to the Manage Tax Registrations page to configure any required tax registrations for Third-Parties. A tax registration contains information related to a party's transaction tax obligation with the tax authority where it conducts business. The supplier located in TN has a tax registration record against the GST regime with a current tax registration status as Registered. The supplier must maintain tax registration records for all its Third-Parties. Regular transaction taxes are applied if Third-Party is registered under GST. If not registered, transaction taxes can be computed as selfassessed (Reverse charge). See Management of GST Registration Numbers and Implementation of Self-Assessed Taxes section for more details.

Tax Point Basis (TPB) is the pointwhere recoverable taxes can be accounted and reported.

Oracle ERP Cloud facilities Delivery, Invoice, Accounting, and Payment as Tax Point Basis. You can use any one of these TPB as per their GST Transaction process requirements on recognition and reporting of recoverable taxes. Using the Manage Configuration Owner Tax Options task you can enable Allow Delivery Based Tax Calculation on Invoice for Oracle Payables application with TPB as Invoice and Tax Point Date (TPD) as receipt. This ensures that taxes are calculated as per tax rates prevailing on Goods receipt date and Recoverable taxes can be recognized and accounted on Invoice for Inbound transactions. See the Tax Implementation Guide for more details on Tax Point Basis and Configuration Owner Tax Options (COTO).

This table lists sample setups for Allow Delivery Based Tax Calculation on Standard Invoice for Payables application through COTO:

Configuration Owner Tax Options (COTO)	Values
Configuration owner	Business Unit
Application name	Payables
Event Class	Standard Invoice
Allow Delivery Based Tax Calculation	YES
Report Delivery based taxes on	INVOICE
Tax Point date	Receipt
Tax point basis	INVOICE

Tax recovery is the full or partial recovery of the tax paid on purchases by a registered LRU to offset the taxes collected from any sales transactions. GST is recoverable by the way of an input tax credit after complying with applicable regulations. In Oracle ERP Cloud, tax recovery functionality is available. The GST recovery rate on a tax may vary based on one or more transaction factors. You must set up the required tax recovery rate rules to determine the appropriate recovery rate applicable on the transaction.

PO Tax Determination

This table displays the transaction lines for a PO Tax Determination process:

Transaction Line No	Serial No	Tax Regime	Tax Name	Tax Status	Tax Jurisdiction	Tax Rate	Tax Amount	Recoverable Tax Amount
1	1	GST	GST	Standard	TS	18%	329.40	329.40
2	2	GST	GST	Standard	TS	18%	473.40	473.40
Total GST on payables invoice							802.80	80280

Note: The Non-recoverable Tax Amount column doesn't have any values:

After the Tax Determination process is complete, the application inserts tax lines at a summary level. It inserts one line for each applicable tax.

This table shows one tax line for the GST:

Tax Line	Rate Name	Rate	Tax Amount	Tax Regime	Tax Name	Tax Status	Tax Jurisdiction
1	GST_18	18	802.80	GST	GST	Standard	TS

Once the PO is approved, the buyer sends it to seller with these details:

Seller: Green Corp.

Bill to/ship to Location: TS

This table shows the details the seller receives from the buyer:

Line	Item	Unit Price	Quantity	Line Amount
1	A (Inventory Item)	INR 1.83	1,000	1,830.00
2	B (Inventory Item)	INR 2.63	1,000	2,630.00
	Total in INR		4,460.00
	18% GST		802.80
	Total PO Value in INR		5262.80

The seller located in TN sends an invoice for the total amount of INR 5,262.80 (4,460 item amount plus 802.80 tax).

Buyer configures TPB as Invoice so recoverable taxes are accounted on the Payables invoice. Buyer enters the Payables invoice in ERP Cloud by matching it to PO, selects the First-Party Tax Registration Number and validates the invoice. The Tax determination process is initiated and following taxes are computed:

AP Tax Determination

This table displays the transaction lines for an AP Tax Determination process:

Transaction Line No	Serial No	Tax Regime	Tax Name	Tax Status	Tax Jurisdiction	Tax Rate	Tax Amount	Recoverable Tax Amount
1	1	GST	GST	Standard	TS	18%	329.40	329.40
2	2	GST	GST	Standard	TS	18%	473.40	473.40
Total GST on payables invoice							802.80	80280

Note: The Non-recoverable Tax Amount column doesn't have any values:

After the Tax Determination process is complete, the application inserts tax lines at a summary level. It inserts one line for each applicable tax.

This table shows one tax line for the GST:

Tax Line	Rate Name	Rate	Tax Amount	Tax Regime	Tax Name	Tax Status	Tax Jurisdiction
1	GST_18	18	802.80	GST	GST	Standard	TS

After tax lines are generated, the respective distribution lines are generated for both transaction and tax lines.

This table displays the distribution lines generated for both transaction and tax lines:

Line	Distribution Type	Amount
1	Accrual	1,830.00
2	Accrual	2,630.00
3	Recoverable Tax	329.40
3	Non Recoverable Tax	0.00
3	Recoverable Tax	473.40
3	Non Recoverable Tax	0.00
Total Balance	Total Balance	5,262.80

After Accounting, these accounting entries are created. This table displays the details of accounting entries:

Account Class	Account Type	Debit	Credit
Accrual	Accrual	4,460.00
Tax Recoverable	Asset	802.80
Tax Non Recoverable	Expense	0.00
Liability	Liability		4,460.00
Liability	Liability		802.80
Total Balance		5,262.80	5,262.80