Abatement for Service Tax and VAT
This document is for country version and applicable for country like India.
This document is about Proportionate tax on work contract. It explains how abatement works for Service tax and VAT on the tax net amount.
In SAP ByDesign, System behavior is such that the Service tax and VAT is directly calculated on the tax net amount.
Tax Net Base Amount
Service Tax Rate is 14% on 15000
VAT Tax Rate is 5% on 15000
But ideally in some cases abatement will be applicable say Service tax must be calculated on 70% of Tax net amount and VAT should be calculated on 60% of the tax net amount.
Then we need to make use of the existing abatement rates provided separately for VAT and Service Tax where both the abatement and tax rates will be combined and maintained in the abatement rates.
Tax Net Base Amount
Abatement 70% on Net Amount for Service Tax.
Service Tax 14% on 70% Abatement Amount
Abatement Rate is (70*14% = 9.8) 9.8% of 15000
Abatement 60% on Net Amount for VAT.
VAT Tax 5% on 70% Abatement Amount
Abatement Rate is (60*5% = 3) 3% of 15000
To achieve this scenario, need to follow the below steps:-
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.
- 1. Go to Business Configuration Work center.
- 2. Click on work center view ‘Implementation Projects’.
- 3. Select the current implementation and click on the button ‘Open activity list’.
- 4. Go to the tab ‘Fine-tune’.
- 5. Select the activity ‘Tax on Goods and Services’ and click open.
- 6. Click on Define tax rate schedules.
- 7. Under the country India, we can find that already five abatement tax rate types has maintained. Here rate in percentage is flexible for change just by clicking above that and rewriting the percentage and save.
If we take this as instance, we can directly maintain 9.8 for country India, under Abatement provide the value as 9.8.
Then in the purchase order system directly calculates the tax amount using the abatement rate.