Configure Self-Assessment Taxes on Advance Paid (Prepayment)-Transaction Simulation in P2P
Here's the transaction simulation to configure self-assessment taxes on advance paid prepayment.
Green Corp. Ltd located in TS, pays advance (prepayment) to PennyPack Systems Ltd located in TN for the supply of Goods (HSN: 5488864). PennyPack Systems Ltd is an unregistered supplier and therefore, the applicable tax rate is 9% for the goods.
As per the applicable tax rules, taxes must be self-assessed on payment of advance to unregistered suppliers for the supply of goods. Such business cases can be simulated as per the tax rules configuration as follows:
Create the Prepayment Invoice with these determinants to compute the self-assessed taxes on such prepayment:
This table displays the Header information:
| Field | Input | Comments |
|---|---|---|
| Business Unit | Green Corp. Ltd BU | |
| Legal Entity | Green Corp. Ltd | This Legal Reporting Unit is enabled for computation of selfassessed taxes. |
| Supplier | PennyPack Systems Ltd | The tax registration status of PennyPack Systems Ltd is not registered and the supplier tax registration filed is blank. |
| Supplier Site | PennyPack Systems TN | |
| Invoice Type | Prepayment | Computation of taxes enabled for prepayments. |
This table displays the Line-level information:
| Line | Item | Unit Price | Quantity | Line Amount | Product Fiscal classification |
|---|---|---|---|---|---|
| 1 | A (Inventory Item) | INR 15 | 100 | 1500.00 | HSN:AA5488864 |
| Total in INR | 1500.00 |
This table displays the Tax Rules simulation:
| Rule | Explanation |
|---|---|
| Tax Applicability rule | The Tax Applicability rule can be defaulted from the tax applicability option at the Mange Tax Level. You can also define the Tax Applicability rule based on the Geography Determining Factor or Tax Classification Input Factor. |
| Tax Rate rule | The tax rate depends on the Tax Rate rule defined on the basis of Product Fiscal Classification (HSN: AA5488864) or any other rules based on your requirement. |
| Tax Registration rule | Taxes computed as self-assessed per the Tax Registration rule. In the given business case, PennyPack Systems LTD is an unregistered supplier so this rule refers to the Bill to LRU setup to compute tax as self-assessed. |
| Tax Point Basis (TPB) | The TPB is Invoice and TPD is the date when the invoice was created. |
This table displays the tax line for this simulation:
| Tax Line | Rate Name | Rate | Tax Amount | Recoverable Tax | Non- Recoverable Tax | Tax Regime | Tax Name | Tax Status | Tax Jurisdiction | Self-Assessment |
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | GST_9 | 9 | 135.00 | 81.00 | 51.00 | GST | GST9 | Standard | TS | ✔ |
Accounting on Prepayment
If the tax recovery rate is 60% of INR 135.00, INR 81.00 is the Recoverable tax, and INR 54.00 is the Non-recoverable tax. You configured Tax recovery rate and rules accordingly in the application.
You must define tax accounts and sub ledger accounting rules as per your business requirements to account the prepayments. In some countries, as per applicable tax rules on prepayments, input tax credit can’t be allowed on advance payments. In such cases, you must define tax recovery rules so that Input tax credit can’t be recorded on advance payments.
This table lists the tax accounts and sub ledger accounting rules for this example:
| Line | Account CCID | Class | Debit | Credit | Comments |
|---|---|---|---|---|---|
| 1 | 01.00.1340.000.00 | Prepaid expenses | 1500.00 | ||
| 2 | 01.00.2340.000.00 | Self-Assessed Recoverable Tax | 81.00 |
Recoverable taxes are accounted in this Accounting class in a separate Account Code Combination Identification number (CCID) as per your tax account configuration. This is a part of the Input Tax Credit. |
|
| 3 | 01.00.1340.000.00 | Self-Assessed Non-recoverable Tax | 54.00 | Non recoverable taxes are accounted in this Accounting class. These taxes are a part of the item cost and use the same CCID as the prepaid expenses. | |
| 4 | 01.00.2210.000.00 | Liability | 1500.00 | Supplier liability | |
| 5 | 01.00.2599.000.00 | Self-Assessed Tax Liability | 135.00 | Self-Assessed tax liability |
Accounting on Standard AP Invoice
Here's an example. Vision Corporation Ltd created a standard AP invoice for supply of goods worth INR 4000 (HSN: 5488864) to PennyPack Systems Ltd and applied the earlier prepayment for this invoice.
This table lists the accounting entries for standard AP invoice creation and application of prepayment on this invoice:
| Line | Account CCID | Class | Debit | Credit | Comments |
|---|---|---|---|---|---|
| 1 | 01.00.7810.000.00 | Item expenses | 4000.00 | Value of the supplied goods. | |
| 2 | 01.00.2340.000.00 | Self-Assessed recoverable Tax | 216.00 | Recoverable taxes are accounted in this Accounting class in a separate CCID (as per your tax account configuration). This is a part of the Input Tax Credit. | |
| 3 | 01.00.7810.000.00 | Self-Assessed Non recoverable Tax | 144.00 | Non recoverable taxes are accounted in this Accounting class. These taxes are a part of the item cost and use the same CCID as the prepaid expenses. | |
| 4 | 01.00.2210.000.00 | Liability | 4000.00 | Supplier liability | |
| 5 | 01.00.2599.000.00 | Self-Assessed Tax Liability | 360.00 | Self-Assessed tax liability |
Accounting after Prepayment to Standard Invoice
This table lists the tax accounts and sub ledger accounting rules after applying prepayment to a standard invoice.| Line | Account CCID | Class | Debit | Credit | Comments |
|---|---|---|---|---|---|
| 1 | 01.00.7810.000.00 | Item expenses | 4000.00 | ||
| 2 | 01.00.2340.000.00 | Self-Assessed recoverable Tax | 216.00 | ||
| 3 | 01.00.7810.000.00 | Self-Assessed Non recoverable Tax | 144.00 | ||
| 4 | 01.00.2210.000.00 | Liability | 1500.00 | Supplier liability is reversed. | |
| 5 | 01.00.2599.000.00 | Self-Assessed Tax Liability | 135.00 | Self-Assessed tax liability is reversed. | |
| 6 | 01.00.2210.000.00 | Liability | 4000.00 | Supplier liability | |
| 7 | 01.00.1340.000.00 | Prepaid expenses | 1500.00 | ||
| 8 | 01.00.2340.000.00 | Self-Assessed recoverable Tax | 81.00 | Self-Assessed recoverable tax reversed. | |
| 9 | 01.00.1340.000.00 | Self-Assessed Non recoverable Tax | 54.00 | Self-Assessed Non-recoverable tax reversed. | |
| 10 | 01.00.2599.000.00 | Self-Assessed Tax Liability | 360.00 |
Manage Input Tax Credit under Self-Assessed Tax Mechanism
Self-assessed taxes are accounted through separate accounting classes. These accounting classes differentiate the self-assessed tax liability and the self-assessed input tax credit from the regular taxes.