Understanding the Application of Exchange Rate in Calculating Tax
This topic explains how exchange rates are used in calculating Goods and Services Tax (GST), Tax Deduction at Source (TDS), and Tax Collected at Source (TCS).
GST
The following points indicate how exchange rates affect GST calculations:
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In a GST tax rule, the SuiteApp specifies amounts in the From Amount and To Amount fields in the base currency of a subsidiary.
When a transaction involves a foreign currency, the SuiteApp uses an exchange rate to convert the transaction amount into the subsidiary’s base currency.
After conversion, GST is calculated based on the amount range in the GST rule that applies to the transaction.
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The SuiteApp derives the cess rate to calculate GST compensation cess using the formula: Cess Rate = Cess Rate Per Unit / Exchange Rate
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The SuiteApp sets the LUT or Bond value in a subsidiary’s base currency. To find the amount to add or deduct from LUT or Bond value, the exchange rate for a transaction is multiplied by the tax amount.
For example, the new LUT or Bond value is calculated using the formula: New LUT or Bond Value = Old LUT or Bond Value – (GST Amount x Exchange rate)
TDS
In a TDS tax rule, you must enter the threshold amount in the subsidiary's base currency.
When a transaction uses foreign currency, the SuiteApp uses the exchange rate to convert it to the base currency.
After conversion, the SuiteApp checks if the tax amount crosses the threshold. This tax amount is stored in India Accumulated Tax Buckets.
To display the tax amount on the transaction, the SuiteApp converts it back to the foreign currency using the exchange rate.
TCS
In a TCS tax rule, you must enter the threshold amount in the subsidiary’s base currency.
When a transaction uses foreign currency, the SuiteApp uses the exchange rate to convert it to the base currency. After conversion, TCS is calculated if the bill amount is greater than the threshold set in the rule.
After calculating TCS, the SuiteApp again uses the exchange rate to convert and show the tax amount in the transaction’s foreign currency.
For more information about TCS calculation, see TCS Calculation.