Tuesday May 24, 2016

India - Tax Applicability

Welcome to the 'Oracle Financials for India (OFI) - India Localization Blog'.

In our constant endeavor to serve the esteemed Customers in different possible ways and share various important product communication, updates and features on regular basis, we have initiated the Oracle Financials for India (OFI) Blog.

With this, I am highly delighted to inform you that you will be shared on regular basis with Key product updates, different offerings from a product functionality perspective and also various important patch updates for some of the business critical issues. 

The OFI blog builds on what I have learned over a period of time based on my product expertise & interactions with customers across different Industry verticals predominantly in terms of different business processes / operations critical issues, project milestones and post production support. 

As I detail in OFI Blog, what I publish in these blog posts represent my views. I encourage you to respond, add comments, make suggestions and even disagree - with one sincere request: please keep comments relevant to the conversations taking place, maintain respect for all those involved and contribute value and depth to the discussion.

We moderate comments and will quickly remove any that are offensive, disrespectful or irrelevant. 

One more request, please don't post private information in this public forum.

Thank you for reading, visiting and being part of this OFI Blog.

With this, will quickly move on to the first post 'India - Tax Applicability', which will help the users/audience understand the overall tax structure in India across different business scenarios.  

The intent is to help the users understand at a very high level, various tax implications in regards to the day to day business transactions thereby aiding the users come up with the hassle free business mapping rules and gap analysis as they further embark on India specific roll out or implementation of the Oracle Financials for India (OFI) product.

Scope

The main objective of this Blog is to provide a brief overview of the tax applicability across different business transaction flows in India.  

This content is intended to be supplementary in nature for knowledge & information purposes and does not in any way, purport to be a substitute for any official document existing or being drafted or currently published. Before initiating any purchase/sale transactions, the users should consult their respective tax/finance departments for any tax applicability details.

Overview

Businesses in India must pay to the supplier, the taxes related to central, state, and city tax authorities on most of the goods and services that they purchase. Also, Businesses collect from customers, the taxes related to central, state and city tax authorities on most of the goods and services that they sell.

Find below the quick snapshot of the Tax structure in India:

Following taxes are applicable for the business transactions in India based on the nature of transaction:

1. Income Tax:

Income Tax is the Tax levied on the income of the Individuals or other entities like Hindu Undivided Families or firms or any other trusts.

2. Capital Gains Tax:

Capital Gains Tax is a tax on Gains or Profits arising from transfer of a Capital Asset.

3. Securities Transaction Tax (SST:

SST is tax payables on the value of Securities.

4. Perquisite Tax:

Perquisites are the perks or benefits received by an individual in view of his employment/professional association with any Organization or company. Perquisite tax is the tax levied on these perquisites. This shall be paid by the employer who provides these benefits to the Employees.

5. Corporation Tax:

It is a tax levied on the net income of the Company. Companies which are registered in India under the Companies Act 1956 are liable to pay Corporate Tax.

6. Surcharge:

It is an additional tax levied on the total tax liability. The applicability depends on the total tax liability payable.

7. Tax Deducted At Source (TDS):

Tax Deducted at source is the amount withheld from payments of various kinds such as salary, contract payment, commission etc.

8. Tax Collected At Source (TCS):

Tax Collected at Source arises on the part of the seller of goods. Here, tax is collected at the source of income itself. It is to be collected at source from the buyer, by the seller at the point of sale.

  • Every person, being a seller, shall collect tax at source (TCS) from the buyer of goods specified in section 206 C (1)

9. Education Cess (EC):

Education Cess is an additional levy on the Basic tax liability. As the name suggests, this is a cess that is collected in order to enable the Govt. to run the education programs and any such scheme to improve the quality/standards of Education in India.

  • Levied from 2004
  • The Cess is levied in 2 parts:
    • Primary Education cess(EC) => 2% applicable on the total tax payable.
    • Secondary Higher Education Cess(SHC) => 1% applicable on the total tax payable.
  • Budget 2015-2016 proposed to increase the present rate of service tax plus (EC+SHC) from 12.36% to a consolidated 14%. With this, it got proposed that both the EC and SHC will get subsumed into the new tax rate in Service Tax Regime. This is applicable even for the EC and SHC of the Excise tax.

10. Secondary Higher Education Cess (SHEC):

SHEC is the additional levy imposed to create an expenditure pool for higher education improvement.

11. Customs Duty:

Customs Duty is the duty levied by Customs on imported goods and exports (in some cases). In addition, Additional customs duty would also be applicable in case of some transactions.

12. Central Excise Duty:

Central Excise duty is an indirect tax levied on goods manufactured in India. The manufacturer of final product shall be allowed to take credit of duty of excise paid on any input received in the factory.

13. Service Tax:

Service tax is an indirect tax levied on specified taxable services. The responsibility of payment of the tax is cast on the service provider. The credit of the Service Tax paid on the input services/Central Excise duties paid on inputs/capital goods/Additional Customs duty can be utilized towards payment of Service Tax by an assessee on their output services.

  • It is levied under Section 66B[1] of the Finance Act, 1994.
  • It is administered by the Central Excise & Service tax Commissionerates and the Service Tax Commissionerates working under the Central Board of Excise & Customs, Department of Revenue, Ministry of Finance, Government of India
  • Section 68(1)[2]confers liability to pay service tax on service provider

14. Swachh Bharath Cess (SBC):

It is a Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015 on all the taxable services at the rate of 0.5% of the value of taxable service.

  • Came into effect from Nov-2015(Ref: (notification No.21/2015-Service Tax, dated 6th November, 2015)
  • Effectively, the rate of SBC would be 0.5% and new rate of service tax plus SBC would be 14.5%. 
  • As such SBC translates into a tax of 50 paisa only on every one hundred rupees worth of taxable services. The proceeds from this cess will be exclusively used for Swachh Bharat initiatives

15. Krishi Kalyan Cess (KKC):

KKC is an additional levy imposed for the purpose of financing and promoting the Agriculture improvement initiatives and measures. 

  • This is a new Cess introduced from Budget 2016.
  • This would be levied @0.5% on the Taxable Service value.

16. Sales Tax:

Sales tax is levied on the sale of a commodity, which is produced or imported and sold. Sales Tax is a levy on purchase and sale of goods in India and is levied under the authority of both Central Legislation (Central Sales Tax) and State Governments Legislations (Sales Tax). 

The Government levies Sales Tax principally on intra-state sale of goods. States also levy tax on transactions which are "deemed sales" like works contracts and leases. In addition to Sales Tax, some states also levy additional tax, surcharge, turnover tax and the like. Ordinarily, Sales tax is recovered from the buyer as a part of consideration for sale of goods.

17. Value Added Tax (VAT):

Value Added Tax is a multi point sales tax with set off for tax paid on purchases. It is basically a tax on the value addition on the product. At present the set off would be available on the goods locally purchased within the State only. No set off would be available to the goods purchased in the course of inter state trade and commerce. VAT is a state subject.

18. Other Taxes (State Specific):

  • Professional Tax:

It is the tax on income of the individual. It is levied by the State Governments in India. The applicability tax amount varies from State to State.

  • Gift Tax:

Gift Tax is the tax imposed on the gift of property or any other such financial assets without receiving or expecting something of monetary gains or value in return.

  • Toll Tax:

It is a user fee collected from the people who use the road i.e the fee paid by the users for using the service offered.

  • Octroi:

Octroi is the duty levied on a certain goods entering a specific town /municipality or a City.

  • Works Contracts Tax (WCT):

Works contract tax (WCT) is a tax imposed on a contract for work, such as assembling, construction, building, altering, fabricating etc.

  • Purchase Tax:

Purchase Tax is the tax paid to the VAT department for the purchases made from an unregistered dealer.

  • Turnover Tax:

Turnover Tax is the tax levied on the Net value of the sales done by a Business Firm in any particular financial year.

  • It is not applicable as of now in India. 

  • Entertainment Tax: 

It is the tax levied on any financial transaction that is related to entertainment (e.g. Movie tickets, Amusement parks etc.)

  • Registration Tax:

It is the tax levied on any Registration of the documents (e.g. sale deed)  made under the provisions of the relevant Registration act of any State.

Disclaimer:

Author has compiled this information to the best of his knowledge based on his expertise and knowledge across different domains and also data collected from different sources(e.g. Govt.Tax sites like CBDT etc). Author shall not be held responsible for the data accuracy in this article. All the details of article are view of author and he is not responsible for any action taken by reader.

Wednesday Aug 27, 2014

RMA Calculates Tax as a Positive Value

Are you seeing positive tax values on Return Material Authorizations (RMAs) and negative tax values on the actual Credit Memo? 

If this is occurring, the calculated order total will be incorrect.  Also if you are using credit checking with exposure, the exposure calculation will also be calculated incorrectly.  Which may cause an incorrect credit hold.

If you are seeing positive tax values on RMAs and negative tax values on the actual Credit Memo, you will need to review Doc ID 1620464.1  RMA Calculates Tax as a Positive Value instead of Negative Value.    

The note explains what needs to be verified and any necessary actions.  Please note this is currently only occurring in version 12.2.


Updated 04-Sep-14: amended incorrect product version.

Friday May 30, 2014

Oracle Service Contracts – Calculate Estimated Tax with Higher Accuracy

On a Service Contract the tax rate and its effectivity can change over the contract duration.  Hence, service organizations need to provide an accurate picture of the estimated tax that the customer might end up paying. 

Prior to Release 12.1.3+, the Oracle Service Contracts application calculated the estimated tax based on the line/ sub line start date.  With Release 12.1.3+ (via Patch 16601269:R12.OKS.B) , new functionality provides users with an option to calculate tax at contract billing schedule level, thereby considering the changes in tax rate effectivity at that level.

A new profile option 'OKS: Calculate Tax at Schedule' has been introduced which can be used to control whether the existing or new functionality is used.  If the profile is set to 'Yes' the application calculates tax at the billing schedule level for all lines/ sub lines.  For more details on the implementation steps and functionality, please refer to Doc ID 1676700.1: Oracle Service Contracts – How To Calculate Estimated Tax with Higher Accuracy.

Wednesday Apr 09, 2014

Webcast: E-Business Tax Series, Session 2 – Basic Overview, Regime To Rate Setup & Transactional Flow (US Based Setup) From A Financials Perspective

Webcast_icon.jpgWebcast: E-Business Tax Series, Session 2 – Basic Overview, Regime To Rate Setup & Transactional Flow (US Based Setup) From A Financials Perspective


Date: April 23, 2014 at 11:00 am ET, 9:00 am MT, 4:00 pm GMT, 8:30 pm IST


Join us to learn how to create a Regime to Rate Flow in R12. This session will focus on US based examples from a Financials perspective. This one hour webcast provides technical and functional users with an overview of E-Business Tax (EBTax), its setup and flow. It will also be helpful to those who’ve recently upgraded or are planning to upgrade to R12. Session 2 of 6 in the E-Business Tax Webcast Series, complete details can be found in Doc ID 740966.1.

Topics will include:

  • Overview of E-Business Tax
  • Regime to Rate setup
  • Sample transactional flow
REGISTER.jpg

Details & Registration: Doc ID 1626097.1

Tuesday Apr 08, 2014

Webcast: E-Business Tax Series, Session 1 – Prerequisites for Regime to Rate Flow Creation

Webcast_icon.jpgWebcast: E-Business Tax Series, Session 1 – Prerequisites for Regime to Rate Flow Creation


Date: April 22 , 2014 at 11:00 am ET, 9:00 am MT, 4:00 pm GMT, 8:30 pm IST


What prerequisites need to be considered before creating Regime to Rate Flow in E-Business Tax? This one hour webcast provides functional users with an overview of E-Business Tax in Release 12, a brief introduction to the setup creation process, and more. Session 1 of 6 in the E-Business Tax Webcast Series, complete details can be found in Doc ID 740966.1.

Topics will include:

  • E-Business Tax introduction
  • Brief introduction of E-Business Tax setup creation process
  • Importance and creation of Geography Structure
  • Validation process of locations for Tax Calculation

REGISTER.jpg
Details & Registration: Doc ID 1640295.1

Thursday Mar 27, 2014

Webcast: E-Business Tax (EBTax) Webcast Series April 22 - May 7, 2014

Webcast_icon.jpg

E-Business Tax Webcast Series: Join us for any or all of our six part series on E-Business Tax!

Webcasts will be held at 11:00 am ET, 9:00 am MT, 4:00 pm GMT, 8:30 pm IST

Check the time in your time zone.



Date
Webcast
Details & Registration
22-Apr-14
Session 1 – Prerequisites for Regime to Rate Flow Creation
Doc ID 1640295.1
23-Apr-14
Session 2 – Basic Overview, Regime To Rate Setup & Transactional Flow
(US Based Setup) From A Financials Perspective
Doc ID 1626097.1
29-Apr-14
Session 3 – Manufacturing Regime to Rate Setup & Transactional Flow (Non-US Based Setup)
Doc ID 1640273.1
30-Apr-14
Session 4 – Advanced Setups From A Financials Perspective
Doc ID 1626088.1
06-May-14
Session 5 – Fiscal Classification Types & Their Creation For Tax Calculation From A Manufacturing Perspective
Doc ID 1640290.1
07-May-14
Session 6 – Migrating from 11i to Release 12
Doc ID 1626087.1

Wednesday Mar 26, 2014

Interested in E-Business Tax Integration with General Ledger?

Did you ever consider using Tax Journals feature in General Ledger but felt discouraged by the complex setup required, or simply did not know where to start?  We now have a simple solution for you!

A new Whitepaper was published recently on this topic: 

E-Business Tax Integration with General Ledger in Release 12 (Doc ID 1613279.1)!

This document aims to provide all required setup steps in E-Business Tax and General Ledger with the final purpose of creating Tax Journals in Oracle Applications.

Find step by step details with screenshots and examples regarding setup for:

  • Tax and Tax Regime
  • Tax Jurisdictions
  • Tax Rates and Rules
  • Transactions Processing in General Ledger
  • Useful Standard Reports
  • Table Level Details 

Sample of Tax Setup from the Whitepaper

E-Business Tax permits configuration of taxes according to local tax laws and international requirements. Integration of E-Business Tax with General Ledger allows uniformly using tax configurations for manual journals too.

Don't just READ about this setup, SEE it! 

Thursday Jun 27, 2013

Tax Deducted At Source (TDS) for India Localizations

Do you have questions about TDS (Tax deducted at source) for India Localizations or want to know the latest information about this functionality?


See Doc ID 1546099.1 TDS Tax Deduction at Source for India - Master Troubleshooting Guide. The document includes sections with the following information:

Documentation and Setup of Tax Deduction at Source – this section contains a presentation with the configuration steps for the TDS feature

Resolving errors – this section contains recommended patches and documents with solutions for specific errors

Frequently asked questions  – See also our new FAQ Doc ID 1549522.1 for frequently asked questions about TDS.

Thursday Apr 25, 2013

Webcast: Oracle E-Business Tax (EBTax) Setup and Data Integrity Analyzer

Webcast.jpg

Subject: Oracle E-Business Tax (EBTax) Setup and Data Integrity Analyzer

Date: May 30, 2013 at 11.00am ET, 10.00am CT, 09.00am MT, 08.00 am PT, 4.00 pm, GMT Summer Time (London, GMT+01:00), 8.30 pm, IST (Mumbai, GMT+05:30)


This one-hour session is recommended for technical and functional users of Oracle E-Business Tax (EBTax) who would like an introduction to the EBTax Setup and Data Integrity Analyzer.  The session will highlight how to use the diagnostic script Tax_Setup_detect_pkg.sql to identify known data integrity issues within your EBTax Setup during Migration/Upgrade.


Topics will include:

  • Review of the EBTax Setup and Data Integrity Analyzer
  • How to use the tool
  • Resolution and prevention of issues
  • Case study

REGISTER.jpg
Details & Registration: Doc ID 1545719.1

Wednesday Apr 03, 2013

New Master Troubleshooting Guide (MTG) for India Service Tax Release 12

Do you have questions about service tax for India Localizations or want to know the latest information about this functionality?  Check out the improved Master Troubleshooting Guide (MTG) for India Service Tax Release 12 (Doc ID 1459341.1) for a wealth of information to help you avoid and resolve problems.

The document includes sections with the following information:

 


1. Setup of service tax – this section contains viewlets that explain the setups related to service tax and transaction cycles


2. Documentation on service tax – Visit this section to review detailed documentation about service tax on accrual basis and reverse change mechanism


3. Resolving errors – this section contains recommended patches and documents with solutions for specific errors


4. Reconciliation queries – Consolidated queries that help in reconciling different scenarios

 See also our new note R12 : Frequently Asked Questions on Service Tax Functionality - Financials for India (Doc ID 1538419.1) for frequently asked questions about service tax.

Wednesday Jan 30, 2013

Why didn’t Tax get Calculated on My Invoice?

The most frequent question we get in EBS Financials support............Why won't my tax calculate?   In Release 12, many factors can influence tax applicability and prevent a tax from being levied on an invoice.  Frequently this is a setup issue - either an unintended consequence of a setting, or even a setting that has not been saved correctly.  We thought it would be helpful to run through some of the troubleshooting steps we follow when trying to diagnose your tax calculation issues!


  • Tax Regime
Navigation: Tax Managers > Parties > Party Tax Profile
  • Tax

Navigation: Tax Managers > Parties > Party Tax Profile > Main Tab 

  • Tax Status
Navigation: Tax Managers > Tax Configuration > Tax Statuses
  • Tax Rate and Jurisdiction
    • Dates on the transaction must fall within those on the Rate and Jurisdiction
    • Tax Rate must be defined as a child to the tax status derived in the prior section
  • Tax Rules
    • Users are strongly encouraged to apply the latest tax rule engine patch referenced in Document 1301356.1 to avoid known issues with rule evaluations in EBTax.
    • When implementing E-Business Tax you must specify a default rules before taxes can be enabled. Make certain that the default for 'Determine Tax Applicability' is set to Applicable or that you have a rule defined and enabled that makes the tax applicable for your specific transaction.
  • Configuration Owner Tax Options

Navigation: Tax Managers > Defaults and Controls tab 

  • Intercompany (AGIS) 
    • Intercompany transactions presently do not pass a ship-to address.  Make sure that your tax rules for intercompany transactions are flexible enough to derive the proper tax rate without reliance on ship-to
  • Transaction
    • If your tax considers ship-from in Receivables, make certain you specify a warehouse on your transaction line 
    • Make certain the address on your transaction and for your Legal Entity and Operating unit are valid

This includes detailed screen shots of the setup

    • To assist in finding these records, the following document can be leveraged
This document details many of the diagnostics that can be run to get transactional data from different EBS products as well as setup information from E-Business Tax
  • Additional Considerations

E-Business tax has the flexibility to specify complex tax rules at a wide variety of levels.  Rules can consider fiscal classifications set at the party or product level, transaction classifications codes and many additional factors.  Troubleshooting expert tax rules will be addressed soon in a separate note.  Until the note is published we suggest that you read and review the examples in the following document:

DocID 1108463.1, How Tax Determining Factors Work in R12 E-Business Tax


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