Income Tax
Purpose
This component computes tax on the income received by an employee for a financial year.
Income of an employee may consist of all or any of the following components:
· Regular Income - This is that part of the salary, which an employee receives every month and is projected for the entire financial year. For example, Basic Pay, House Rent Allowance, Conveyance Allowance.
¡ Monthly regular income - Mon Reg Income Wage Type (/124). This wage type is the cumulation of the values of all the wage types for which you have configured the Cumulation Class as 24.
¡ Annual regular income - Ann Reg Income Wage Type (/410)
The value of Ann Reg Income Wage Type (/410) is the sum of
i. Value of Mon Reg Income Wage Type (/124) in the Cumulative Results Table.
ii. Value of Mon Reg Income Wage Type (/124) for the current period.
iii. Value of Mon Reg Income Wage Type (/124) for the current period, multiplied by the value of Projection Factor Wage Type (/401).
Value of the Projection Factor Wage Type (/401) is the number of remaining periods that payroll has to be run in the current financial year, for the employee.
The projection of the remaining periods can be until the end of the financial year or until the employee is terminated or the retirement date of the employee, whichever is the earliest.
· Irregular Income - This is that part of the salary, which an employee receives for a particular period and is not projected for the entire financial year. For example, Leave Travel Allowance, Bonus.
¡ Monthly irregular income - Mon Irr Income Wage Type (/125). This wage type is the cumulation of the values of all the wage types for which you have configured the Cumulation Class as 25.
¡ Annual irregular income - Ann Irr Income Wage Type (/411)
The value of Ann Irr Income Wage Type (/411) is the sum of
iv. Value of Mon Irr Income Wage Type (/125) in the Cumulative Results Table.
v. Value of Mon Irr Income Wage Type (/125) for the current period.
· Perk - Example, Housing Perk, Loan Interest Advantage.
¡ Annual Perk Wage Type (/127)
¡ Annual Perk Wage Type (/413)
The value of Annual Perk Wage Type (/413) is equal to the value of Annual Perk Wage Type (/127).
· Previous Employment Salary
¡ Prev Gross salary Wage Type (/4V1)
¡ Val of perk u/s 17(2) Wage Type (/4VJ)
¡ Profts wrt sal u/s 17(3) Wage Type (/4VK)
These values are captured directly through the Previous Employment Tax Details Infotype (0580). In case you have configured Multiple Form 16, these values are automatically captured in the system when an employee gets transferred from one group of the company to another group in a financial year.
¡ Any other Income Wage Type (/131)
This includes the income captured through Income From Other Sources Infotype (0584) Other Sources Subtype (0002), and the profit and loss from House Property.
Implementation Considerations
SAP provides you with the following configurations:
· The slab codes are defined in the table view Slab Codes for Taxation(V_T7INT1) for a financial year/years.
· The different taxation slabs for the tax codes are defined in the table view Taxation Slabs (V_T7INT3).
These are legal settings and you cannot modify them.
Integration
Payroll Function India Income Tax computations (INTAX) computes the tax on the income received by an employee for a financial year.
Features
The system calculates the income tax for an employee after taking into consideration the following:
· Exemption
¡ Medical Exemption - Exm.under pro.to sec17(2) Wage Type (/414)
¡ Section 10 Exemptions - Exemption U/S 10 Wage Type (/130)
The value of Exemption U/S 10 Wage Type (/130) is the sum of the values of
§ CEA Annual Exemption Wage Type (/4E1) - CEA Annual Exemption Wage Type (/4E1) - Exemption on Child Education Allowance
§ CHA Annual Exemption Wage Type (/4E2) - CHA Annual Exemption Wage Type (/4E2) - Exemption on Child Hostel Allowance
§ Conveyance Annual Exempt Wage Type (/4E3) - Conveyance Exemption
§ HRA Annual Exemption Wage Type (/4E4) - Exemption on House Rent Allowance
§ LTA Annual Exemption Wage Type (/4E5) - LTA Annual Exemption Wage Type (/4E5) - Exemption on Leave Travel Allowance
§ Prev exemp u/s10 Wage Type (/4V2) - Previous Employment Exemptions
§ Voluntary Ret. Exemption Wage Type (/4E6) - Exemption on Voluntary Retirement
§ Leave Salary Exemption Wage Type (/4E7) - Leave Exemption Allowance
§ Gratuity Cont. Exemption Wage Type (/4E8) - Gratuity Exemption
In addition to these wage types, you can define your own annual exemptions for allowances and reimbursements using the General Payroll function for Allowance/Reimbursement Treatment (INCTX).
· Deduction
¡ Aggregate Deduction - Aggrg Deduction Wage Type (/424)
The value of Aggrg Deduction Wage Type (/424) is the sum of the values of
vi. Std Deduction Wage Type (/420) - Standard Deductions
vii. Empmnt tax (Prof Tax) Wage Type (/422) - Empmnt tax (Prof Tax) Wage Type (/422) - Professional Tax
Empmnt tax (Prof Tax) Wage Type (/422) includes the value of Prev prof. tax paid Wage Type (/4V3).
¡ Chapter VI Section 80 Deductions - Agg of Chapter VI Wage Type (/432)
· Rebate
Exemptions under Chapter VIII - Agg of Chapter VIII Wage Type (/444)
The value of Agg of Chapter VIII Wage Type (/444) is the sum of the values of
¡ Section 88 Rebate - Sec 88 Wage Type (/438)
The value of Sec 88 Wage Type (/438) is the rebate on
viii. Prev PF contributed Wage Type (/4V4) - Previous Employment Provident Fund Contribution
ix. Ee Ann PF contribution Wage Type (/3F6) - Employee Provident Fund Contribution
x.
Non Provident Fund Section 88
Investments
¡ Sec 88B Wage Type (/440) - Section 88B Rebate
¡ Sec 88C Wage Type (/441) - Section 88C Rebate
· Relief
Section 89(1) Relief - Sec 89 relief Wage Type (/451)
The system also takes into consideration the following components of tax while processing income tax for an employee:
· Voluntary Tax
An employee can choose to pay certain amount of tax, which is not based on any other component. The Voluntary tax deduction Rule (INVT) calculates this Voluntary Tax. The system provides you with three options for voluntary tax deduction:
¡ Deduction of an additional tax amount in a period without changing the annual tax deduction amount. The value of Income Tax Wage Type (/460), calculated for the period by Payroll Function India Income Tax computations (INTAX), is increased by this additional amount. This additional tax that is deducted in a particular period is adjusted in the following payroll periods. You have been provided with the model wage type Voluntary Tax (MVT0) for this purpose.
¡ Deduction of a fixed tax amount in a period without changing the annual tax deduction amount. The value of Income Tax Wage Type (/460), calculated for the period by Payroll Function India Income Tax computations (INTAX), is replaced by this fixed amount. Tax deduction in the following periods is adjusted accordingly. You have been provided with the model wage type Voluntary Tax (MVT1) for this purpose.
¡ Deduction of a fixed amount of voluntary tax over the annual tax liability. The Voluntary tax deduction Rule (INVT) generates the Additional Voluntary Tax Wage Type (/462) for this fixed amount. The value of Income Tax Wage Type (/460), calculated for the period by Payroll Function India Income Tax computations (INTAX), is increased by the value of Additional Voluntary Tax Wage Type (/462). This additional tax that is deducted is not adjusted in the following periods of the financial year. The total tax deducted in the year is increased by this fixed amount of voluntary tax. You have been provided with the model wage type Voluntary Tax (MVT2) for this purpose.
· Tax on Bonus
The system allows you to generate the following tax reports:
· Form 16
· Form 24
See also:
Previous Employment Tax Details
