Linking a Tax Scheme to a Product

1.3.1 Linking a Tax Scheme to a Product

A tax scheme is linked to a product, only if tax is applicable to the product. This linkage is established through the Tax Details sub-screen of Loans and Deposits Product Definition screen. The tax scheme linked is applicable on a contract processed under the product by default. However, you have the option of waiving the application of tax, for a specific contract.

A tax rule represents the method in which a specific tax has to be applied. Thus, for a tax component to be levied on a contract, you should specify:

The currency in which the tax has to be levied.
Whether it is a flat amount or a percentage of the component amount to be taxed.
The slab or tier structure, based on which the tax should be calculated

In addition, also specify the minimum and maximum amount of tax that can be applied for a specific rule.

A tax scheme can consist of a set of tax rules that can be applied to a product.

A tax rule defines the method in which tax has to be calculated. The amount based on which the tax has to be applied, is not specified for a tax rule. This definition is done when the tax scheme is linked to a product.

The system offers flexibility, in terms of specifying the method in which tax has to be calculated.

Example

In the LC product module, for one type of product, you could use a tax rule to apply tax on the commission earned from the customer while for another product, you can use the same rule, to apply tax on the LC amount.

A tax scheme is made applicable to a product when it is linked to the product. Once the tax scheme is specified for linkage, indicate:

The component on which each rule should be applied.
The event at which the tax should be liquidated and the type of tax – withholding or expense.

Click Tax from the Loans and Commitment Product Definition (OLDPRMNT) screen to link a tax scheme to a product.

This topic contains following sub-topics:

Parent topic: Maintaining a Tax Scheme