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IBM Business Consulting Services
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India Statutory Requirementsand SAP Functionalities
Country India version Overview
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IBM Business Consulting Services
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Introduction to India Statutory Requirements
SD MM
FI
* Financial reporting is supported by the standard SAP package
The modules affected by India statutory requirements are FI, MM & SD
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IBM Business Consulting Services
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Introduction to India Statutory Requirements
The following process gets affected due to India Statutory requirements
• Purchasing
• Sub contracting
• Stock transfer of goods
• Payment to service vendors
• Sales
* Any Movement of goods between legal entities or payments made or received to/from business partners are affected by India statutory requirements
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IBM Business Consulting Services
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The MM Module
MMSD
FI
* The process affected by India statutory requirements are the Purchase, Subcontracting & Stock transfer in MM. Tax settings are common in nature.
* Account Determination is handled in FI.
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Purchase Order
Excise InvoiceExcise InvoiceCaptureCapture
Goods Receipt
CENVAT CreditCENVAT Credit
Invoice Verification
The Purchasing Cycle
* Country India version related transactions are depicted in a different font
• Excise duty is a type of manufacturing tax
• Excise duty rate depends upon on the material type as defined by the authorities• CENVAT stands for Central Value added tax
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Credit Available :Rs. 1000
Introduction to Excise DutyComponent Inventory value Rs. 6600
Component Inventory value Rs. 5600
Rs.Basic Price - 5000Excise Duty - 1000LST/CST - 600Total Price - 6600
Finished good Excisable
Component
Credit Available :Rs. 0
If the item purchased is part of a manufactured product that is excisable then the Excise duty paid for this purchase order can be availed as CENVAT credit
Finished good not Excisable
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Vendor Excise Vendor Excise InvoiceInvoice
Purchase Order
Goods receipt
CENVAT credit CENVAT credit
Invoice Verification
• Local / Central sales tax is determined upon the location of the sale & the Ship-to-party region
• Sample Pricing is as below :
The Purchasing Cycle - Domestic
Description INRA Basic Price 5000.00B Excise Duty (20% of A) 1000.00C Total Excise Duty 1000.00D Sub Total (A + C) 6000.00E Local Sales Tax (10% of D) 600.00F Grand Total 6600.00
Either Local sales tax or central sales tax is applicable on any one item.
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Vendor Excise Invoice
Purchase Order
Goods receipt
CENVAT credit CENVAT credit
Invoice Verification
The Purchasing Cycle• The following data is captured referring to the Vendor’s excise invoice
• Purchase order number
• Material number
• Quantity
• Excise rate
• Excise amount
The information captured in this transaction forms the basis for availing the CENVAT Credit as well as for maintaining statutory registers
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IBM Business Consulting Services
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Vendor Excise Vendor Excise InvoiceInvoice
Purchase Order
Goods receipt
CENVAT credit CENVAT credit
Invoice Verification
The Purchasing Cycle - Domestic• Goods receipt transaction captures the following data, referring to the vendor excise number
• Purchase order number
• Material number
• Quantity
• Inventory Valuation is carried out in this transaction based on purchase order
The information captured in this transaction forms the basis for updating the statutory records regarding quantity related information
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IBM Business Consulting Services
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Vendor Excise Vendor Excise InvoiceInvoice
Purchase Order
Goods receipt
CENVAT credit
Invoice Verification
The Purchasing Cycle - Domestic• Data captured referring to the Vendor’s excise invoice are posted
• No Inventory Valuation is carried out in this transaction
• Accounting entries are made in the clearing account for excise
The information captured in this transaction forms the basis for updating the statutory records regarding value related information
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IBM Business Consulting Services
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Vendor Excise Vendor Excise InvoiceInvoice
Purchase Order
Goods receipt
CENVAT credit CENVAT credit
Invoice Verification
The Purchasing Cycle - Domestic• Corrections to Inventory Valuation is carried out in case of corrections to excise invoice
• Accounting entries in the clearing account for excise are nullified by making the payment to the vendor
Inventory re-valuation takes place in case of corrections to excise invoice amount
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Purchasing from Overseas Sources
Create purchase requisition
Create purchase requisition
Create Request for quotation
Create Request for quotation
MaintainquotationMaintainquotation
Create purchase order reference to request for
quotation
Create purchase order reference to request for
quotation
Create order acknowledgement
Create order acknowledgement
Create shipping notification
Create shipping notification
Analysis of purchase order
values
Analysis of purchase order
values Invoiceverification
Goods receipt
Request for quotation
Quotation
Purchaseorder
Order Acknowledgement
Shipping notification
Purchase requisition
Goods receipt for purchase order
Goods receipt for purchase order
Enter invoiceEnter invoice
Clearance from Port, LC Activities,
Customs Assessment
Clearance from Port, LC Activities,
Customs Assessment
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IBM Business Consulting Services
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Vendor Excise Vendor Excise InvoiceInvoice
Purchase Order
Goods receipt
CENVAT credit CENVAT credit
Invoice Verification
The Purchasing Cycle - Imported
Description INRA Basic Price 5000.00
Customs DutyB Basic (20% of A) 1000.00C Special Customs (5% of A) 250.00D Total Customs 1250.00E Sub Total (A + D) 6250.00F Counter Vailing Duty CVD (13% of E) 812.50G Sub Total (E + F) 7062.50H Special Additional Duty (4% of G) 282.50
Grand Total 7345.00
In an imported purchase order, the CVD component is used for availing CENVAT credit.
The other components vary based on prevailing . rates.
• Counter veiling duty depends upon on the material type as defined by the authorities
• All other steps are similar to domestic procurement
• Sample Pricing is as below :
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The Purchasing Cycle - Capital Goods
• CENVAT credit availment is possible on Capital goods procured for manufacturing or for enhancing existing capacities. Some of the Types for which credit can be availed are :
• Consumables
• Tools
• Assets
* CENVAT credit for capital goods are applicable for manufacturing companies only & not for a trading company
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IBM Business Consulting Services
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Purchase Order
Excise InvoiceExcise InvoiceCaptureCapture
Goods Receipt
CENVAT CreditCENVAT Credit““on hold”on hold”
Invoice Verification
IntimationIntimation
CENVAT CreditCENVAT CreditAvailmentAvailment
The Purchasing Cycle - Consumables
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IBM Business Consulting Services
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Purchase Order
Excise InvoiceExcise InvoiceCaptureCapture
Goods Receipt
CENVAT CreditCENVAT Credit““on hold”on hold”
Invoice Verification
IntimationIntimation
Goods Issue
CENVAT CreditCENVAT CreditAvailmentAvailment
The Purchasing Cycle - Tools
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Transfer Posting
Purchase Order
57f4 Document 57f4 Document GenerationGeneration
Goods Receipt
57f4 Completion57f4 Completion
• Sample Pricing is as below :
External Sub Contract Cycle
Purchase order is generated for the Processed Item, to be received from the sub contractor. It also contains information about the input components required for processing.
Description INRA Processing Charges 5000.00
Grand Total 5000.00
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Transfer Posting
Purchase Order
57f4 Document 57f4 Document GenerationGeneration
Goods Receipt
57f4 Completion57f4 Completion
• Based on the component requirement and availability, the same are transferred to the sub contractor’s site.
External Sub Contract Cycle
The transferred stock are shown as part of the valuated stock of the enterprise, but lying with the sub contractor
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Transfer Posting
Purchase Order
57f4 Document Generation
Goods Receipt
57f4 Completion57f4 Completion
• A statutory document called 57f4 is generated which captures the following details -
• Sub contractor details
• Material description
• Batch details
• Quantity
• Value
• Expected date of return (within 180 days)
External Sub Contract Cycle
On generation of the document, CENVAT account needs to be debited by 10% of the value of components sent for processing, the same can be reversed only if the processed components are received with in 180 days
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Transfer Posting
Purchase Order
57f4 Document 57f4 Document GenerationGeneration
Goods Receipt
57f4 Completion57f4 Completion
External Sub Contract Cycle• Goods receipt transaction captures the following data, referring to the 57f4 document number
• Purchase order number
• Material number
• Quantity
• Statutory register related data
• Inventory Valuation is carried out in this transaction based on confirmation of components consumed during processing
CENVAT account can be credited only after complete receipt of the purchase order items (processed items)
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IBM Business Consulting Services
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Transfer Posting
Purchase Order
57f4 Document 57f4 Document GenerationGeneration
Goods Receipt
57f4 Completion
External Sub Contract Cycle
• On complete receipt of goods from the sub contractor, the 57f4 document is closed
• In case of short closure of purchase order, CENVAT credit can be taken only for those items that have been received, and rest needs to be forfeited
Receipt of processed goods within 180 days is crucial
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External Sub Contract Cycle
Rs.Basic Price 5000Excise Duty 500Total Price 5500
Component Credit reversed : Rs.500
Component CENVAT debited : Rs.1000
Received Later
than 180 days
Received
Within 180 days
Inventory valuation
Credit Available :Rs. 1000
Credit Debited :Rs. 500(when the component is sent to the job worker)
Component
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The FI Module
SD MM
FI
* The process affected by India statutory requirements is the Withholding tax known as the tax deducted at source
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Down Payment to Vendor
Invoice Verification
Down Payment Clearing
TDS Entry on TDS Entry on balance amountbalance amount
Vendor payment
TDS Payments
Challan UpdationChallan Updation
TDS Certificate TDS Certificate PrintingPrinting
Annual ReturnsAnnual Returns
Tax Deductions at Source
* TDS liability is set up at the time of provision or payment whichever is earlier
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Vendor Down Payment• TDS Rates are maintained for various sections under the Income Tax Act. The rates are attached to vendor master and transactions (down payments and invoices)
(e.g.) A contractor is classified under the relevant section & is subject to say 20% TDS.
•An amount of Rs.40,000 is paid as advance & the entries passed are
Dr. Vendor Advance 40000
Cr. Bank 32000
Cr. TDS Payable 8000
Down Payment to Vendor
Invoice Verification
Down Payment Clearing
TDS Entry on TDS Entry on balance amountbalance amount
Vendor payment
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Invoice Verification For Example : A contractor is classified under the relevant section & is subject to 20% TDS.
•An invoice of Rs 70000 is verified, and the entries passed are
Dr. Expense / Stock 70000
Cr. Vendor 70000
Down Payment to Vendor
Invoice Verification
Down Payment Clearing
TDS Entry on TDS Entry on balance amountbalance amount
Vendor payment
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Down Payment Clearing For Example : A contractor is classified under the relevant section & is subject to 20% TDS.
•The down payment of Rs 40000 was fully cleared against the invoice
Dr. Vendor 40000
Cr. Vendor Advance 40000
Down Payment to Vendor
Invoice Verification
Down Payment Clearing
TDS Entry on TDS Entry on balance amountbalance amount
Vendor payment
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TDS Entry For Example : A contractor is classified under the relevant section & is subject to 20% TDS.
•TDS is computed on the invoice, after clearing the down payment with the invoice
Dr. Vendor 6000
Cr. TDS payable 6000
(20% on Rs. 30000)
Down Payment to Vendor
Invoice Verification
Down Payment Clearing
TDS Entry on balance amount
Vendor payment
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Vendor Payment
For Example : A contractor is classified under the relevant section & is subject to 20% TDS.
•Vendor is paid the amount net of TDS
Dr. Vendor 24000
Cr. Bank 24000
Down Payment to Vendor
Invoice Verification
Down Payment Clearing
TDS Entry on TDS Entry on balance amountbalance amount
Vendor payment
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TDS paymentsFor Example : A contractor is classified under the relevant section & is subject to 20% TDS.
•At the period end the TDS is paid to the government against the liability
Dr. TDS payable 14000
Cr. Bank 14000
(Rs.14000 composed of Rs. 8000 provided during advance and Rs. 6000 provided during the invoice)
TDS Payments
Challan UpdationChallan Updation
TDS Certificate TDS Certificate PrintingPrinting
Annual ReturnsAnnual Returns
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Other TDS Activities•On payment to government, a document called Challan is filled up, this Challan number is updated in the system
•The vendors are issued TDS certificates at the period end
•The company has to file annual returns to the government which gives details of TDS deducted by various tax sections
TDS Payments
Challan Updation
TDS Certificate Printing
Annual Returns
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•CIN uses SAP’s standard withholding tax functionalities to address TDS requirements.
•Extended withholding functionality is currently followed.
•CIN supports TDS payments on invoice or payment which ever is earlier
Tax Deductions at Source
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The SD Module
SD MM
FI
* The process affected by India statutory requirements is the pricing procedure for Sales tax & CENVAT credit utilization
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IBM Business Consulting Services
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The Sales Cycle
Creation of Delivery
Sales Order
CENVAT UtilizationCENVAT Utilization
Excise InvoiceExcise Invoice
Commercial Invoice * The pricing structure is similar to that of the vendor pricing.
•The pricing elements of a sales order should contain the following
• Basic price less all discounts
• Excise duty
• Sales tax
• Entry tax
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Tax Element in Sales Cycle
Customer within the same state as the delivering plant
Customer outside the state of the delivering plant
Central Sales Tax
Local Sales Tax
Sales Tax
Manufacturing Plant / Sales Depot
Sales tax is calculated on (Base Price + Excise duty)
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IBM Business Consulting Services
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The Sales Cycle
Creation of Delivery
Sales Order
CENVAT UtilizationCENVAT Utilization
Excise InvoiceExcise Invoice
Commercial Invoice
• The delivery of a sales order includes Picking & Packing of goods as per the Sales order
* There is no change in functionality of Delivery due to India statutory requirements
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The Sales Cycle
Creation of Delivery
Sales Order
CENVAT Utilization
Excise InvoiceExcise Invoice
Commercial Invoice
• The excise duty payable is to be paid before the goods leave the factory premises
• The credit available in the statutory records can be utilized for paying the excise duty.
• The amount payable can be netted off from these records
* If credit is not available, then duty amount is to be deposited to the government
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IBM Business Consulting Services
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The Sales Cycle
Creation of Delivery
Sales Order
CENVAT UtilizationCENVAT Utilization
Excise Invoice
Commercial Invoice
•An excise invoice needs to be generated which would be audited by Excise authorities
•The invoice should contain the following details
• The Excise duty percentage
• The Excise duty amount
• The Excise duty payment details
• The sales order details
* An excise invoice can be combined with the commercial invoice if required
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IBM Business Consulting Services
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The Sales Cycle
Creation of Delivery
Sales Order
CENVAT UtilizationCENVAT Utilization
Excise InvoiceExcise Invoice
Commercial Invoice
• The commercial invoice is sent to the customer with the amount payable to the organization with the break up of the pricing components
• If the excise & commercial invoice is combined then the details required are still the same
* The invoice needs to move along with the goods
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Summary of the India statutory requirements
•The main statutory requirements of India are
• CENVAT credit availment & utilization
• Tax deducted on source
• Sales tax
* All records maintained for statutory requirements are subject to audit by the authorities
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Introduction of VAT
• All States in India are yet to move towards VAT regime.• VAT has come into force in many States already.
• Excise, CST and Service tax to remain and other taxes to go.
• All declared goods to come under VAT and VAT credit available to both manufactures and traders.
• Tax credit can be carried forward every month till the end of next fiscal year.
• Export / SEZ – input tax paid will be refunded in full.
• Capital goods credit – number of installments to be decided by each state.
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Implication of VAT in SAP
• Jurisdiction codes would be scrapped.
• One business place needs to be defined for each TIN no.
• Each plant would be assigned to a business place.
• While more than one plant can exist in one registration, one plant cannot have two registrations.
• Alternate GL accounts can be assigned for Tax code at business place.
• Master Note 818732 to be followed closely to monitor various changes.
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Question & Answers
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