AR Sales Tax
So the sales invoice looks like basic price, discount,, Add sales tax, then there is the sale price, then add transportation charges, this is the kind this will be done through the sales and distribution module. Your taxes etc will be calculated. But here, the tax, what we are going to calculate now, just I’ll show you how tax is going to be calculated, and this will be useful for us to understand FLN SD integration. Mainly, for that purpose, it will be useful.
There are 2 kinds of taxes we can calculate. This is number 1, inclusive tax. Number 2, exclusive tax. Inclusive tax means, say, for example, you are making sale, your sale price is 100 and system will bifurcate 100 into the tax portion and the sales portion. So out of 100, liability for sales tax is 10 rupees, and this is 90 rupees. Exclusive tax means sales is, say for example, 100 and liability for sales tax 10, put together 110 is the total sale price. So this we call it as exclusive tax. Rather here, 100 is the sales and that sales tax is 10 and 10. So both the things are applicable. Right? But here, exclusive tax can be calculated only through sales and distribution module, and finance people will create the tax codes and give it. And Inclusive Tax, okay, we can do it but practically this is not that much applicable.
Let us see this. When you are making sales at customer account return to sales and liability for sales tax. Because sales tax is so many people think that this is, what you call, expenditure. No. It is a liability. Sales tax, why it is a liability means, we are going to collect the sales tax with one hand and with other hand, we pay to the government. So that’s why it does not belongs to us, neither we pay from our pocket and we don’t keep it with us. So that’s why whatever the tax that we collect, that has to be deposited into the government account on or before a certain statutory date. Let us see the configuration steps.
Of course, this is very simple. Financial accounting (New). Financial accounting and global settings. Tax on sales or purchase. Basic settings, check calculation procedure. Here, we have defined our tax procedure.
Double click on define procedures.
See taxes, these are for DRL. This we have already done with. But what I need to do now, I need to define the tax procedure. Double click on control data tab. Here, there is a table. Let us click on new entries. Say step. I say 100, 200, 300, here you can take 1, 2, 3. But I’m taking 100, 200, 300 because I want to subsequently, add some more steps in between. If I take 1, 2, 3, I cannot add. After 1, immediately 2 has come. If it is 100, I want to add some more steps between 100 and 200. What I can do? I can say 101, 102, 103, 110. Like that, I can use. Similarly, even before 100 also, if I want to add anything, I can take 99, 98 like that. I can define these steps. So that’s better to take 100, 200, 300.
Condition type. Here, what is condition type? Here, condition types are standard defined by SAP system. There is a condition type called BSB. That is nothing but base amount. At 200, I say, see, now we are going to calculate the sales tax. For sales tax, there is a condition type called MWVS, output tax. Output means the production. So output tax, the tax on the, of course, the sales value on the output. I can calculate output tax. Output tax to be calculated on the base amount. Similarly, since we are doing this, let me put even the purchase tax. But, of course, this we’ll see when we go to the accounts payable. That is the condition type is MWVS.
Here, under ‘from’, what I can do, I’m telling to the system to calculate output tax on the base amount. Say, base amount means as I told you 1,000, 1,000 minus discount. If discount is not there, I’m going to calculate the tax on this 1,000. If I’m going to calculate the tax on this 1,000, 10% on 1,000 is going to be a 100 rupees. So what I can do on 1,000 is 100. So I can insert the system. Please calculate the tax on the base amount, sales domestic, this is nothing but the base price. Tax has to be calculated on the base price. So that’s why what we are telling to the system right, we are telling to the system, you calculate tax on the base amount. Now output tax, if calculate tax on the base amount, if you are going to instruct to the system, base amount is lying in which step? 100 step, that is first step. Then what you do? Take 100 here. 100 and ‘to’ also 100 because we don’t have any other step, I can say tax has to be calculated on the base amount. This base amount is lying in step number 100. So that’s why you give 100 and 100. Similarly, purchase tax and Input tax, this also the same 100, 100 because whatever is the purchase value, that itself is a base amount in the purchase invoice. So system will take separately whether what is purchase tax, what is output tax.
That we’ll see anyhow while we post the entry. System will calculate. Here, we have one more thing, account key. Your account key is nothing but here, what I need to use, for input tax, you have to take VST. I tell you what is See input tax.
Input tags VST. Against input tax, I’m taking VST, and 300 step is MWS. Then nothing but output tax. Now let me explain once again. We are instructing to the system, please, you calculate tax on the base amount. Let us take only sales tax part, output tax. So we are telling to the system, you calculate output tax on the base amount. That’s why I’m telling to the system. Now what is this condition type? Condition type is going to help us in calculation of the tax. Right? Identifying the base amount everything. So this has already been defined in the system and kept. Now account key, we have seen account key even in case of bills of exchange.
In the bills of exchange, we have used bill discounting charges BDS. T code OBYH. If you remember BDS. What we have done, we have double clicked on ‘Bank discount charges’ and assigned a GL account.
This is nothing but bank bills discounting charges. Whenever you find a transaction key, remember one fundamental rule that wherever there is a transaction key that must and should be associated with a GL account. Means that GL account, we are going to post automatically. BDS, we post automatically. See, this one, bank bills and discounting charges, etc, we have not posted any manual entry. Just in a particular field, we have, given the amount, and system will automatically post to the respective GL account. This is mainly for automatic postings. But automatic postings is taking place means there should be one transaction key. Like that in different different places, we use this account key at cash discounts, input tax, output tax, at every place we do that. Now why I’m telling you is that? So here we are telling to the system if it is input tax, account key VST will trigger. On output tax, MWS will trigger. It has subsequent step. We are going to assign GL accounts, aggressed MWS and aggressed VST. So here system is going to calculate sales tax with the help of the condition type on the base amount. That is what we told the system here and this and this are the account keys which are going to help the system to post the respective amounts to the respective accounts. Because again, we are going to see VST and MWS. There, we’ll assign GL accounts to this account case. In that way, from there, here. From here, it is linked to these things. How it works, we’ll see once we post the entry. This is the simple sales tax. Save it. Come back.
Assign country to calculation procedure. Now what are the calculation procedure that we have defined that should be linked to the country. Say country India. Tax SNY. Now what I will do?
TaxDRL. Save it. Come out. Then coming to calculation, Define tax code for the sales and purchase.
T code is FTXP. Country, India.
Here I’m going to create, tax code. Our company code is DRL. What I will do, I take D1. Any percentages, whatever as many percentages as you want, you can define. For each percentage, I need to create a code. So D1, press enter.
What I can do here? Say 8% sales tax or say 10% sales tax. This is for DRLB. Whether this is only description part. Tax type, whether input tax or output tax, say output tax. A, output tax. Press enter.
A means output tax. Right. And V for input tax. Okay. Anyway, input tax, we’ll do it afterwards. But now I’m going to calculate the output tax. Output tax, say 10%. Press enter.
Now output tax, 10%, press enter.
Input tax, let us deactivate it. Save it. Now see, same condition type, whatever we have defined there, all those things, BASB, AWS, and MWAS, 100, 200, 300, all those things are visible here. So I have calculated output tax, second, for D2. I’m going to define now. Say 12%. Let us imagine that we have 2 products and we have 2 tax percentage out there. See, tax type again, A. Here, give 12%.
So as many percentages you have, those many tax codes we have to define. Save it. So percentage, we have defined. Our next step is Posting, Define tax accounts. Posting here, sales tax will be done automatically. But, anyhow, let us create one GL account. So FS00. Sales tax is nothing but a liability.
So liability, you can take either current liabilities or other liabilities you can take.
Right? Assign the current liabilities, 100502, I can take. All other liabilities also, you can take it.
Click on create. So this is current liabilities, balance sheet account, liability for sales tax, liability for sales tax. Only balances in local currency. Line item display, G001. So nothing special.
Now we have to make automatic posting assignment, define tax accounts. If you remember, we have already defined our tax procedure. And against 300 VST, See. This is output tax.
MWS output tax MWS. See MWS is the account key. Now here, find out MWS against that same GL account.
MWS. Output tax. Double click on that. Select chart of accounts DRCA, check the tax code. If I check this tax code, I’ll get one extra column. If you don’t check that, you’ll not get this column. So tax code, we have created already D1, D2.
insert 
So if it is D1, post to this account. If it is D2, post to the same account. So that’s the same. That’s why we can post it to only one account only. Save it. So done with automatic posting automatic posting configuration.
Next process. So first of all, we have designed basic settings, then assigned it to the country. Then we have created the tax codes, then we have defined the tax accounts. This is done with. Actually, one more thing I need to do here. Go to FS00. Assign tax code to the GL account. That’s right. Say, 3 lakhs 1, go to change, enter sales as account group, go to control data. Here, tax category,
so here what I can do, I can tell to the system you post only output tax. Output tax and, here, D1, D2, whatever we have defined that are visible here. There are 2 methods I’ll show you both. + means only output tax allowed. So for this account, at the time of posting the entry, you can assign what are the tax code that you want.
Rather, see here how this works. Save it. Only output tax allowed.
So you’ll get get a message. Just ignore it and proceed. So let us create one more GL account. 300001, Sales Pharma product. Create witha template. 3 lakhs 1. Company code, DRLB, So I’m just copying it. Now sales for Pharma products- 2. Product 1, product 2. That’s what I mean. So I have created one more GL account for sales, that is 3 lakhs 1, 3 lakhs 2. Because with an intention that for first account, I want to post 1 percentage. For second account, I want to post some other percentage of tax. So let us see how this works.
Go to Account receivable, Document entry, F-22 invoice general. So company code, everything is readily available now. Posting key 01. So here customer account return to sales, that is our entry. But let’s say, it’s 6 lakhs, Sun Pharma.
So here it will be customer account dr 100 rupees and the liability for sales tax 9 rupees to sales 91 rupees.
So it will work like this, inclusive tax. So that’s why we need to create a sales tax liability account. So, we have created that.
Now what I need to do is here, say let me give 1 lakh round figure. Click on this one, the Calculate tax box. So it’s sales tax. Debit is customer account, credit should be to sales account.
See, here if you don’t enter the tax code, system says that GL account, 3 lakhs 1, requires a valid tax code. So now since we have assigned that tax code to the GL account, So you cannot post without assigning the GL account without assigning the tax code. Now tax code is see, what are the percentage you want, you can take it 10% or 12%. Let us take 10%. And now only output tax is allowed 3 lakhs 1.
Now after posting the entry, what you do? Go to document, simulate. See how system calculates the tax. Here, I told you system will calculate only inclusive tax from financial accounting. Of course, from sales and distribution module through the condition types, etc, we have separate condition types. By using that, we can calculate the exclusive tax. But here, I’m going to calculate inclusive tax. Here, I’ll give you an example. Say, you went to a shop and you want to buy a TV. Say, maybe, 42 inches and, big TV, and you have bargained it for, say, 1 lakh. Now subsequently, the shopkeeper, he has put the bill in your hand stating that 1 lakh, yes, as bargain, 1 lakh is the cost of the TV and 10% tax on that, 10,000 rupees is sales tax. Please pay me 1 lakh 10,000. Then what is your reaction? Immediately, you’ll get angry. But you said, your bargain for 1 lakh means you mean that 1 lakh should be inclusive of tax, I don’t know how you are going to bifurcate the amount of tax and the amount of your sales, I want all put together 1 lakh. I don’t accept this invoice, I don’t pay extra 10,000 because we have all the bargain for inclusive tax. So that’s why this is called inclusive tax. If it’s 100 rupees, let the system bifurcate between the liability, our sales tax liability, and the sales amount.
Even here, now see what is happening. This is not exclusive tax. If it’s exclusive tax, if it’s 110 is the price, there is 100 is the sales on this 10% total 110. But inclusive means I cannot increase the sale price with the tax. We are going to debit the customer account with 100 rupees but system should bifurcate 90% and 10%. Don’t think that you may have get a doubt that how come like this? 90 and 10, it should be like this. No. Here, 91. You calculate 91. On 91, 10% means 9.1. This is why I have taken 9 here. Let us see here. 1 lakh 90,000 and the sales tax is going to be this much. This 1 lakh is bifurcated into the sale price and the liability for sales tax. How the system will calculate this one? This is nothing but 100 by 110 by 100. I’ll show you how to calculate. 1 lakh into 10 divided by 110 is 9090.90. The .90 is converted into 1. So here, if you took the take this formula, system calculates sales tax and the sale amount, it will be bifurcating from 1 lakh. But it is not like 110, and the 10,000 is the tax. Just save it.
So this is the calculation of sales tax. And one more thing I’ll show you. Calculate tax. Sales tax, 50. I’m taking 3 lakh 2. See, if 3 lakh 1 we have taken, the table showing the blank tax code.
Don’t forget to check the calculate tax box. Otherwise, system will not calculate. Here, tax code. For 3 lakhs 2, let me give 3 lakhs 1. 3 lakhs 2 already we have given.
In FS00. 3 lakhs 1. Go to Control data.
Okay. Here, tax category plus is given. Only output tax is allowed. Take 3 lakh 2. Here, what I’m doing for the second account, I’m giving D2, 12% sales tax. This we call it as hard code. Hard coding means in the GL account, we are just telling to the system You cannot change at the time of posting. For this partly, 50.
3 lakh 2, we have given D2. Say 3 lakh 2, I have given D2.
See. Now it is hard coded. You cannot even change. Simulate. See, once you post entry, you can see only the line items that are posted. If you want to check the tax amount before you post it, simulate.
Alright. And here if you calculate exactly 12% on this, this amount will come. If you want to check that, 89285.71 into 12%, 12 divided by 100 = 10714.29. And the same way if you want to calculate on this, the inclusive tax model, what should I do? 1 lakh into 12% 12 divided by 112 = 10714.
So this is, if you have studied commerce and where you used to calculate the commission, etc, in the math, this is only just general mathematics like a small formula. Inclusive tax, if you want to calculate, 10 by 110 or 12 by 112 because in that 112, the 12% is included. So in that free system calculates. If you calculate exactly 12% on this, this amount we have already seen. So like that 2 ways you can do it. Number 1, in the GL account, if you hard code it, you cannot change at the time of posting the entry. In case if you are not hard coding, rather you select symbol like say 1.
See here only plus or put tax allowed. At the time of posting, you can select what are the percentage you want. Say, for example, for the same product, in different states, we have different taxes. So in such case, I can choose whatever the percentage I want, I can post it. If you don’t want the user to have freedom on that, you want to restrict him. What are the percentage you define, he wants to see. In such case, hard code it, just like 3 lakh 2. This is the calculation of the sales tax, etc, and so next, what we’ll do, we’ll complete the discount part, then we’ll take up integration also.