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Flexible architecture for configuring tax rules. Tax auto-computed & auto-applied
The tax handling system provides you with a highly flexible design that supports a wide range of tax structures. It takes care of variations in tax rules across the globe. It also allows you to make changes in tax rules over a period of time. You can configure and define your entire tax structure from the Tax module and apply them to your items of goods and services. Once done, you can create invoices without being bothered about the tax applicability, which will be automatically taken care of.
The tax system is built around the following 4 parameters:
- Customer Tax Class
- Source of despatch of item
- Destination of sale of item
Various permutations and combinations of the above 4 parameters will have different tax rates applicable. Every item in BusinessAhead is tagged to a tax group. A tax group is a collection of tax codes, where each tax code takes care of a certain combination of source-destination-customer. A tax code is a collection of tax components, where each component defines a tax rate and how it is to be applied. Each tax code may include one or more tax components. In certain types of taxes, you may have a basic tax component and additional tax components. The additional tax components may apply on the basic tax component value and not on the gross value of sale/service. For instance, in case of service tax, the basic component is service tax of 12% and the additional component is 3% of educational cess.
Example: You may have a tax code labelled as Service Tax and contain 2 tax components, viz. 12% Service Tax and 3% Education Cess. You may have a second tax code labelled as Service Tax Special, which may contain 2 tax components, viz. 8% Service Tax and 3% Education Cess. You may have yet a third tax code labelled as Service Tax Special2 and may contain just one tax component, viz. 5% Service Tax. The 3 tax codes may be bundled into one tax group and called Service Tax. The tax group in turn would be tagged to one or more items of service.
While defining the tax group, you will have the provision to define the tax code Service tax as the default tax code to be applied in general and the other two tax codes to be applied on specific combinations of source, destination and customer tax class.
Default Tax Accounts
BusinessAhead automatically creates tax related accounting entries when tax is applied on items in sales and purchase documents. To facilitate the automation process, default accounts are specified.
Depending upon your nature of products/services, various taxes and duties may apply on sale and purchase. These could be Sales Tax (LST, CST), VAT, Service Tax, Excise Duty, Customs Duty, etc. Along with some of these taxes, there may be additional tax components like surcharge, educational cess, etc. While setting up Taxes & Duties, BusinessAhead allows you to create the various tax components that may be applicable for your business. For each such tax component created, a separate tax ledger is automatically created - one under Liability group to account for tax collected on sale and the other under Expense group to account for tax expense on purchase.
Customer Tax Class
You can setup a list of customer tax classes as applicable for your company.
BusinessAhead allows you to classify customers into various Tax Classes. Each customer will fall in any one of the defined tax classes. When you define customer's business terms in the sales module, you assign a tax class to each customer. At tax group configuration, you define rates of tax (tax codes) that will apply to different customer class. Thus, the customer tax class helps determine for each item of sales or service, what rate of tax will apply for a particular customer.
An example set of customer tax classes can be: General Exempt, Special Exempt, Taxable, Govt., Foreign.
Vendor Tax Class
You can setup a list of vendor tax classes as applicable for your company.
BusinessAhead allows you to classify vendors into various Tax Classes. Each vendor will fall in any one of the defined tax classes. When you define vendor terms in the purchase module, you assign a tax class to each vendor. At tax group configuration, you define rates of tax (tax codes) that will apply to different vendor class. Thus, the vendor tax class helps determine for each item purchased, what rate of tax will apply for the items supplied by a particular vendor.
An example set of vendor tax classes can be: Manufacturer, Dealer, Importer, Small Business, Public Sector, Foreign.
Here you create various tax components as applicable for your company. These tax components are used to build your tax codes.
Examples of tax components are:
- 4% CST
- 4% VAT
- 12% Service Tax
- 3% Education Cess
- 1% Surcharge
- 15% Excise Duty
BusinessAhead creates independent ledgers for each tax component defined here.
A tax code defines the relationship between different tax components and the order in which they are applied. Tax codes may comprise one or more tax components. A tax code identifies individual tax components that are taxed. If a tax component is individually taxable, it needs to appear as the first tax component associated with the tax code.
You can define a separate tax code for every item, category and customer class taxed at rates different from the usual rates.
You can create a tax code for each different tax rate that the tax authority charges you.
Example: If you operate from Montana which has a total of 19 counties/cities and a total of 4 different rates - 5%, 5.25%, 5.5% and 4.75%, you can create four different tax codes: MO500, MO525, MO550 and MO475.
A tax group is a collection of tax codes that may be bundled together to form a single tax group. Each item of goods or service that you sell can have attached to it a tax group which will be used by BusinessAhead to determine the rate of tax that may apply in a particular situation of source of despatch, destination of delivery and type of customer/vendor.
In a tax group, you define a default tax code that will apply under most situations. Over and above the default tax code, you can have additional tax codes or no tax defined for exceptional situations that may arise due to a particular combination of source, destination and customer/vendor.