Tax Classification Indicators

[former_member609634]

Dear All,

Can anybody tell me why do I have to maintain tax category for customers (for VAT & CST) as 1 and in the material also as 1 for CST & 1 for VAT.

Would also like to know how does the tax classification indicators functions in determining the tax rates ?

Rgds

[Former Member · Accepted solution]

I guess the reply from Anupa sums it all up. Just to add on to the query, there is no hard and fast rule that tax classifications should be 0 and 1 only for that tax cateogry. There might be other tax classifications like 2 or 3 for reduced tax scenario. For example for certain materials in the European Union, the tax rate is 6% as compared to 19% standard. For these materials you could define a tax classifcation of 2 for the reduced tax and use 1 for the standard 19%.

Regards

Indranil Ain

[Former Member]

Hi,

This is how the tax works in SAP.

You have 2 methods of classifications for tax.

1- Customer Tax classification -

By maintaining 1 or 0 in the customer master/ Billing documents tab under Tax classification section you can say whether customer is taxable or not.

1 - if the customer is taxable

0 - if customer is tax exempt

2- Material Tax classification -

By maintaining 1 or 0 in the material master/ sales tab, under Tax classification section you can say whether material is taxable or not.

1 - if the customer is taxable

0 - if customer is tax exempt

Now come to VK11 condition record for that tax (Eg: VAT)

your VK11 record goes for this combination. (Format)

Customer Tax classification - Material Tax classification - Tax percentage

1 - 1 - 15%

1 - 0 - 0%

0 - 1 - 0%

0 - 0 - 0%

As per the above example, Customer and Material both should be taxable, in order to apply the VAT. Which means sales order will pick 15% as VAT.

For every other cases, it will pick 0% as tax.

Thanks and best regards,

Anupa