Reverse Charge Mechanism with Abatement Process
This document is to explain how to maintain Abatement rate for Reverse charge Scenarios.
In SAP Business ByDesign, RCM with Abatement works on tax rate instead on the Value .The normal service tax rate get deducted based on the abatement rate with that, reduced rate Tax amount will be found from the base value of service.
Abatement (25% , non-taxable)
25% of 100000
12% on 75000
But, In Sap-Business ByDesign, 25% will be acting on service tax percentage directly instead on the value.
In addition, here 25% of 12.36% is 3 % (approx.) and 9% is taxable.
25% on 12
12% - 3%
9% on 100000
To attain this scenario, two steps have to be followed
Step 1: Maintain the abatement value rate in the Business configuration. SAP has already delivered 5 abatement tax rate types, for which it is flexible to change the rate percentage as needed.
- Go to Business Configuration Work center.
- Click on work center view ‘Implementation Projects’.
- Select the current implementation and click on the button ‘Open activity list’.
- Go to the tab ‘Fine-tune’.
- Select the activity ‘Tax on Goods and Services’ and click open.
- Click on Define tax rate schedules.
- Under the country India, we can find that already five abatement tax rate types are maintained in the screenshot attached. Here rate in percentage is flexible for change just by clicking above that and rewriting the percentage and save
Step 2: Post an invoice with the abatement tax rate type.
- Go to Work center supplier invoicing and select ‘New invoice without Purchase order’.
- Give necessary details like supplier, document id and date.
- Click View all and select Items tab.
- Select a service and maintain tax code, Quantity and Price. (Select valid tax code like 17 - Domestic Purchase of Service (Reverse Charge)).
- In taxes sub tab, under tax details, select the line with service tax and change the tax rate type as needed.
Here since 9% was assigned to abatement 1, we are assigning abatement . In addition, we can find that the service tax is calculated with abatement.
NOTE: Currently for reverse charge lines, abatement is not provided.