Exemption on Other Allowances and Reimbursements Configuration 

Purpose

This process allows you to configure the system to calculate tax exemption on any allowance that your company may want to give to the employees.

Process Flow

·        You must create a taxability code for the allowance or reimbursement through the IMG for Payroll India ® Tax ® Tax Liability on Reimbursements, Allowances and Perks ® Define Tax Codes (V_T7INT7).

·        You must create a wage type for the allowance or reimbursement and assign it to the taxability code through the IMG for Payroll India ® Tax ® Tax Liability on Reimbursements, Allowances and Perks ® Assign Tax Code Limits to Wage Types  (V_T7INT9).

·        You must assign the wage type to a Pay Scale Grouping for Allowances through the IMG for Payroll India ®Reimbursements, Allowances and Perks ® Calculate Eligibility for RAPs (V_T7INA9).

·        You must create a subtype for Exemptions infotype (0582) through the IMG for Payroll India ® Tax Exemptions ® Define Other Allowance/Reimbursement Type for Exemptions. The name of this subtype should be the same as the tax code that you have defined for this allowance or reimbursement. This subtype is used to capture the total amount of the proof of expenditure submitted by the employee.

The details in this subtype are used during the calculation of tax exemption on the allowance or reimbursement. You can create a record for this subtype at any point of time during a financial year.

·        You must configure the General Payroll function for Allowance/Reimbursement Treatment payroll function (INCTX) in the Gross to Net Calculation – India schema (INN1) with the following parameter settings:

¡        parm1 - Tax code defined in table view Taxability of Wage Types (V_T7INT9).

¡        parm2 - Annual tax exemption wage type. You have been provided with a model wage type Cust. Sp. Annual Exmp. (MCAX) for this purpose.

¡        parm3 - Whether the payment should be treated like an allowance or a reimbursement while calculating tax exemption.

§         A - Allowance

§         R - Reimbursement

If in table view Taxability of Wage Types (V_T7INT9), you have maintained the Frequency of the Exemption Limit as annual, then

§         In case of A, the amount paid will be projected for the entire financial year, as it is treated like a regular payment.

§         In case of R, only the payments made till date for the financial year, will be cumulated, as it is treated like an irregular payment.

If in table view Taxability of Wage Types (V_T7INT9), you have maintained the Frequency of the Exemption Limit as monthly, the payroll function will read the payments and exemption amount from Exemptions infotype (0582) only for the current month. Also,

§         In case of A, the monthly exemption amount is projected for the entire financial year to arrive at the annual exemption amount.

§         In case of R, the monthly exemptions till date, for the financial year, are cumulated to arrive at the annual exemption amount.

¡        parm4 - Monthly tax exemption wage type. You have been provided with a model wage type Cust. Sp. Monthly Exmp. (MCMX) for this purpose. This parameter is optional.

§         If the tax exemption is annual, that is, you have not specified parm4, then in table view Taxability of Wage Types (V_T7INT9), Frequency of the Exemption Limit can be either monthly or annual.

In this case, you should configure parm2 (annual tax exemption wage type) such that its value is cumulated in Exemption U/S 10 wage type (/130) and Annual Exemptions wage type (/133).

§         If the tax exemption is monthly, that is, you have specified parm4, then in the table view Taxability of Wage Types (V_T7INT9), Frequency of the Exemption Limit should be monthly.

In this case, you should configure parm4 (monthly tax exemption wage type) such that its value is cumulated in Monthly Exemptions wage type (/132). Parm2 (annual tax exemption wage type) is calculated from parm4 (monthly tax exemption wage type). You should configure parm2 (annual tax exemption wage type) such that its value is cumulated in Exemption U/S 10 wage type (/130). The value of parm2 (annual tax exemption wage type) should not get cumulated in Annual Exemptions wage type (/133).

All the parameters, except for Parm4, are mandatory.

·        You must insert the General Payroll function for Allowance/Reimbursement Treatment payroll function (INCTX) in the Gross to Net Calculation - India subschema (INN1) anywhere before the Cumulations for COA/CLA Basis rule (IN76), that is, anywhere before the line of code PIT IN76 P76 NOAB. You can do this through the IMG under Payroll India ® Tax Exemptions ® Maintain Schema for Exemption on Other Allowances and Reimbursements.

·         You must not insert this payroll function in an IF - ENDIF structure.

·         The syntax for this payroll function will be INCTX parm1 parm2 parm3 parm4. Here, parm4 is optional.

Example

Your company gives uniform allowance to its employees. The tax exemption given is monthly. In table view Taxability of Wage Types (V_T7INT9), Frequency of the Exemption Limit is also defined as monthly.

You must maintain the entries in Exemptions infotype (0582) subtype created by you, every month.

General Payroll function for Allowance/Reimbursement Treatment payroll function (INCTX) will have to be specified in your schema equivalent to Gross to Net Calculation - India subschema (INN1) as:

INCTX  SEXM  MCAX  A  MCMX

¡        SEXM - Tax code specified in table view Taxability of Wage Types (V_T7INT9) for uniform allowance.

¡        MCAX - Annual tax exemption wage type.

¡        A - The allowance paid to the employees is projected for the entire financial year to arrive at annual exemptions.

¡        MCMX - Monthly tax exemption wage type.

...

See also:

Exemption on Other Allowances and Reimbursements