Process Tax on MM contracts

The tax processing for MM contracts would occur as follows:

First, the Waiver maintenance for Interest Rate/Period/Amount defined at the at the LD/ MM product level would be checked. The tax would be fully waived if any one of the following conditions was satisfied.

The Interest rate pertaining to Interest Rate Code defined in the Tax Definition of LD/MM product is more than the contract interest rate for the Basis Amount. The interest period for the current interest being liquidated is more than the interest period defined in the Tax definition of LD/MM product. This would be applicable only for deposit and borrowing type of products.

The total interest amount on which tax has to be computed is less than the minimum interest amount defined in the Tax Definition of LD/MM product. This is also applicable for deposit and borrowing types of products.

If a Tax category is linked to a Tax Rule and the Waiver parameters have not been defined, then a configurable override would be shown.
In case the Waiver conditions defined are not satisfied, the tax computation would be done as follows. This computation would be done only for Deposit (LD) and Borrowing (MM) type of products.
- First, the actual basis amount would be arrived at based on the Basis Percentage defined in Tax Rule Maintenance.
- This Basis Amount would be rounded using the currency rounding parameters.
- Then the availability of Tax-Free Allowance at the contract level would be verified. If the Limit has been defined, then the availability of the same would be verified in the sequence in which it has been defined. In case the Tax-Free Allowance has not been defined at the contract level, the same would be verified at the Customer level. If the Tax-Free Allowance is available, the same would be reduced from the taxable amount (Basis Amount) to arrive at the Net Taxable Amount. If the contract currency and the tax-free allowance currency is different, the Basis Amount would be converted to the Tax-free Amount currency.
- The Net Taxable Amount arrived at here would again be rounded up using the Currency Rounding Parameters.
- The taxable amount (Basis Amount) would then be converted into the Calculation Currency (Basis Amount Currency) in case the Calculation Currency defined in the Tax Rule is different from the contract currency.
- The Taxable Amount (Basis Amount) thus computed would be rounded using the rounding parameters defined for the Calculation Currency. Even if the taxable amount is in the same currency as the Calculation Currency, rounding would be done using the Calculation Currency rounding parameters defined in the Tax Rule.
- The appropriate Tax Rate would be picked up based on the slabs defined in the Tax Rule and the tax would be computed on the rounded taxable amount.
- The tax amount thus computed would then be converted into Tax Currency if the tax currency is different from the Calculation Currency.
- The converted amount would then be rounded using the Tax Currency Rounding parameters.
- The Basis Percentage defined in the Tax Rule would be applied again to the tax amount to compute the actual tax amount. The inverse of Basis Percentage would be applied to get the Actual Tax Amount. Thus if the Basis Percentage is 50 and the tax computed by the system is USD 125, the actual tax amount would be USD 125 * (100/50) = USD 250.
- The tax amount computed after application of the Basis Percentage would again be rounded using the Tax Currency rounding parameters.
- Now, the Customer-group Tax Waiver Maintenance would be verified to check if some waiver has been maintained for the Customer Group-Customer-Tax Category-Product combination. If a Waiver Rule has been maintained, then the waiver amount would be computed by applying the waiver percentage to the tax amount.
- The waiver amount would be subtracted from the tax amount
- The net tax amount post waiver would again be rounded using the tax currency rounding parameters to arrive at the final tax amount to be charged to the customer account.