Sap Fico-tax Processes (2)

SAP Implementation Project: PARINAAM Business Blue Print Document for Finance – Tax Process (TDS & WCT) Implemented By

Mahindra Holidays & Resorts India Limited

Tata Consultancy Services Limited

Document History Document Name

Business Blueprint

Title

Finance – With Holding Tax Process

Document Purpose

To be process in SAP for Tax Deducted at Source, (TDS), Works Contracts Tax ( WCT)

Key Words

Supplier Invoices , Payments , TDS Deduction , TDS Certificates issuance , WCT Certificate issuance, Reporting

Document Status

In progress

Contact for Enquiries

Process Basics

Illustrative Response

Process Name

Finance – Extended Withholding Tax including Works contract tax

Process Number

MHRIL-FI-02-02-111

Process Description (Brief Bullet Points) … What Does the Process Do

Calculation and processing taxes applicable on vendor invoices or payments

Process Owner (preferably indicate the position in the organization structure rather than the name)

Head Finance

Input Process Dependent BBP’s

MM, AP, AR, GL & HCM

Document Sign-Off Company

Project:

PARINAAM

Name

MHRIL-TCS CONFIDENTIAL

Date

Signature

Page 1 of 19



Document Change Control Release / Version

Description

Date

V1.0

Extended With Holding Tax

Created By

Suanand K

Reviewed By

Mohan Krishnamurthi

Date

Sign

Approved By Created By Reviewed By Approved By

Glossary S.No 1.

Description

Full Form

Currency

A currency is the money in general use in a country. In Financial Accounting, a currency has to be specified for each company code. This is the local currency. All other currencies are considered as foreign currency. Systems object that you use to classify payment recipients according to their profession, for the purposes of withholding tax reporting. The percentage rate used to calculate the tax amount.

2.

Recipient Type

3. 4.

With Holding Tax rate With Holding Tax Code

5.

Project:

With Holding Tax Type

PARINAAM

A two-digit code that represents the specifications used for calculating and displaying tax. In one business transaction, several kinds of withholding tax may have to be withheld. The withholding tax type governs the way in which extended withholding tax is calculated.


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Introduction This document depicts the SAP enabled TO-BE version of the business process of MHRIL. The document contains how the process under reference will be handled in the TO-BE SAP scenario along with the business benefits and organisational changes required to implement the SAP enabled business processes. The document also highlights Tax Processes (TDS & WCT) and covers the reporting requirements of MHRIL with respect to the process under reference. These are evolved based on the detailed study of the business processes and functions of Customer and with the inputs from the series of Business Blueprint Workshops conducted for this purpose. Intended Users This document will help: 

MHRIL to understand and approve the requirements and design of the proposed application, as adequate for meeting its stated business needs



TCS team to design and develop the application using the requirements as the basis, as well as to plan and manage all project resources thereof.



The acceptance testing team to develop test data and to test the application



The maintenance and support team to understand all aspects of the process, application, and maintain it.

This document states all of the conceptual results of the project PARINAAM. These project results were devised and decided on by the project team and the department experts from customer MAHINDRA HOLIDAYS & RESORTS INDIA LIMITED during the Business Blueprint project phase. This is the main concept document of the project. It is supplemented by separate specifications for custom developments. The content of this document forms the basis and the guidelines for the subsequent Realization phase. This document aims to describe the future business solution based on SAP ERP. Both, IT subjects and organizational issues that are required to understand the situation, are described in it. Any additional explanations that are only relevant when the project is in progress are given in the various project management plan documents, which the project management team will provide on request. Authors and contributors can be referred to in section Document History. SAP R/3 FI module provides a very wide and comprehensive range of functionality that meets the requirement of most of the enterprises worldwide. Thus there was a requirement to study the existing Finance and Reporting practices of MHRIL and map the same to the functionality provided in SAP ECC6.0 in order to evolve the Business Blue print. The main project objectives and business drivers behind MHRIL’s decision to implement SAP are to      

Streamline the processes related to Tax Processes (TDS & WCT) in Finance. Standardize business processes and practices. Eliminate the processes which add no value such as redundant data collections and reconciliation. Address the current and future business requirements. Capture and make available information needed for effective and accurate Finance strategies. Integrated Solution for real time accounting and enhanced reporting.

Project:

PARINAAM


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Table of Contents 1.

Scope............................................................................................................................6

1.1 1.2 1.3 1.4 2.

Process Description / Requirements................................................................................8

2.1 2.2 3.

Business Process Master List reference.......................................................................6 Scope in Brief.............................................................................................................. 6 Location where the Business is performed..................................................................7 Key Policies/Operational Decisions or Logic within the Process...................................7 Explanation of Functions and Events...........................................................................8 Business Requirements............................................................................................... 8

Solution in SAP..............................................................................................................9

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10

TDS Codes................................................................................................................. 10 Assignment of TDS Codes to Vendor Master.............................................................10 Lower deduction of TDS (TDS Exemption).................................................................11 TDS Deduction Process.............................................................................................11 Remittance Challan Process......................................................................................11 TDS Certificate.......................................................................................................... 11 Quarterly e-filing of Challan......................................................................................12 Works Contract Tax (WCT).........................................................................................12 Works Contract Tax Codes......................................................................................... 12 WCT Remittance Challan Process..............................................................................12

4.

Business Process Diagram............................................................................................13

5.

Organizational Consideration........................................................................................14

4.1 5.1 5.2 5.3

Extended With Holding Tax Process...........................................................................13 Organization Structure Consideration.......................................................................14 Master Data Considerations (including all relevant data relationships).....................14 System Configuration Considerations.......................................................................14

6.

Changes to Existing Organization Process.....................................................................14

7. 8. 9. 10.

Description of Improvements........................................................................................14 Functional Deficit.........................................................................................................14 Approach to Cover Functional Deficit.............................................................................14 Integration & Interface Considerations.........................................................................14

6.1

10.1 10.2 11.

Data Conversion / Historical Data.............................................................................15 Data Validation and Reconciliation............................................................................15 Data Cleansing Requirement.....................................................................................15 Scope........................................................................................................................ 15

Enhancements & Forms................................................................................................15

13.1 13.2 13.3 14. 15.

Standard Reports...................................................................................................... 14 Developed Reports.................................................................................................... 15

Data Migration.............................................................................................................15

12.1 12.2 12.3 12.4 13.

Integration................................................................................................................ 14 Interfaces.................................................................................................................. 14

Reporting Requirements...............................................................................................14

11.1 11.2 12.

Changes observed/Suggested...................................................................................14

Functional Deficit...................................................................................................... 15 Enhancements.......................................................................................................... 15 Outputs (e.g. Forms).................................................................................................15

Authorization Requirements.........................................................................................16 Workflow Requirements................................................................................................16

Project:

PARINAAM


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16.


Traceability Matrix........................................................................................................16

Project:

PARINAAM


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1. Scope 1.1 Business Process Master List reference BPML Reference Process Number MHRIL-FI-02-02-111

Core Process Level-1 FICO

Process Area Level -2 Financial Accounting

Business Process Level-3 Extended Withholding Tax

Remarks

1.2 Scope in Brief

Scope of this document covers the current MHRIL process on  Income tax deducted at source other than salaries under various sections of the income tax act 1961 as applicable.  Maintaining recipient types- For example whether tax to be deducted on corporate /others as the tax rate is varied for corporate and others.  Maintaining tax codes as applicable under various sections of the Income tax act.  Maintaining exemption limits or reduction in rate of tax.  Deduction of TDS on advances and clearing against the Invoice is subject to business decision on adjusting advance payments.  Computation of total taxable amount subject to maximum limits not chargeable to tax under various sections of the per Income tax act 1961.  Treatment of TDS on overseas payments for services.  Number ranges for TDS challan, certificates & other bank remittance challans.  Remittances.

Project:

PARINAAM


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 Generation of certificates.  Filing of annual returns. Works contract tax (WCT) is similar to TDS; however there may be Specific formats for payments, updating, and issuance of certificates and filing of returns subject to applicable vendors. The main purpose of this document is to calculate and process the taxes applicable on vendor invoices or payments. 1.3 Location where the Business is performed Location Scope covers Head office / branches / resorts of MHRIL company code and Line of Business (LOB) as defined in organization Structure. 1.4 Key Policies/Operational Decisions or Logic within the Process Not Applicable

Project:

PARINAAM


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2. Process Description / Requirements 1.5

Explanation of Functions and Events    

1.6

TDS or WCT are deducted and recorded at the time of booking vendor invoice. TDS certificate generated/prepared for the deductions made. Taxes are deducted at each branch/resort and returns are filed based on location. Returns are filed quarterly (e-filing).

Business Requirements        

Project:

TDS should be deducted on real time basis either at the time of invoice or payments. TDS on advance payment should be adjusted during invoice against total TDS. Maintenance of tax types and tax codes to be derived automatically from the system. Accumulation of maximum amount not chargeable to tax. Calculation of tax based on exemption limits Generation of certificates Filing of returns Real time calculation of WCT.

PARINAAM


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3. Solution in SAP The following will be configured in SAP to address the business requirements (2.2). Basic Settings: 1) Withholding tax (TDS/WCT) country: Withholding tax will be created for each country specific and relevant to vendor. IN will be used for MHRIL. i) Recipient types: Recipient types are used to determine the rate of tax to be used at the time of tax deduction and tax certificate generation. Following will be recipient types for MHRIL:  CO - Corporate  OT - Others ii) Section code: Section code refers to the assessing officer under the Income tax act 1961, where the tax will be remitted and returns will be filed. This will be maintained and determined either at the time of advance payment or at the time of Invoice whichever is earlier. This is must for generation of challan and tax certificate. In addition to above, following masters need to be maintained in section code:  Assessing officer where the returns are being filed.  Tax deduction number maintained in the search term.  Complete address of the Income tax office. For instance Section code for Chennai can be maintained as 1000. 2) Withholding tax types: This represents the classification of tax types under various sections as listed below: Section Description 194C

Payment to Individual / HUD / Corporate

194J

Fees for Professional

195

For overseas payments for service

194A

Bank Interest

194B

Winnings from Lottery / Crossword Puzzle / Horse Race

194D

Payment of Insurance Commission

194H

Commission or Brokerage

194I

Rent of Plant & Machinery / Land, Building, Furniture, etc / Professional or Technical Fess Based on above classification, withholding tax types will be created in the system. Standard Withholding tax types are available in the system, which can be referred for creation of specific types. Based on the business requirements, the above section codes can be maintained for both for Invoice and payments. This will be represented by 2 characters: For Invoice: 194 C- C1 for Individuals, C2 for HUD and C3 for Others. Similar tax types can be created under different sections. For Payment /Advance: 194 C- P1 for Individuals, P2 for HUD and P3 for Others. Similar for other types of payments

Project:

PARINAAM


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Rounding off rule for withholding tax type: Rules will be defined for each withholding tax type in respective company code. 3) Withholding tax codes: Tax codes represents the percentage of tax prescribed under various sections of the Income Tax Act 1961, which will be deducted either at the time of Invoice or Payment including advance payment. Tax types are assigned to respective tax codes. Withholding tax codes will be represented by a maximum of two characters: For Invoice: 194 C- C1 for Individuals, C2 for HUD and C3 for Others. For Payment /Advance: 194 C- P1 for Individuals, P2 for HUD and P3 for Others. Presently MHRIL is not calculating surcharges separately, which are clubbed with the main income tax. Separate rate type would be created for surcharge with different calculation procedure. 4) Activation of Extended withholding tax and assignment of company codes i) Assignment of withholding tax types to the company code: All the withholding tax types are assigned to company codes with validity period. ii) Formulas for withholding tax: As per tax requirement for business, formulae will be developed to calculate the various taxes. iii) Assignment of GL Codes: Presently separate GLs are used for different types of taxes; same will be followed in SAP. 1.7

TDS Codes TDS Codes will be created as per the applicable tax rates for payments as well as invoice. Master data: Assignment of tax codes in the Vendor Master Based on the nature of service the applicable tax types and tax codes will be attached to the vendor masters which are to be made liable. Multiple tax types can be assigned to a single vendor. In cases where the Vendor is not liable for deduction or at lower rate of tax the same will be entered. In the Vendor master either with 100% exemption or reduction percentage for a specified Validity period. Vendor master is to have the relevant Permanent account number of the vendor in order to pick up during certificate printing.

1.8

Assignment of TDS Codes to Vendor Master TDS codes will be assigned to vendor master as per applicable rates for individual vendors. Both categories of tax codes i.e. for payment as well as for invoice booking will be assigned to each vendor. Some vendors may be rendering services that are subject to TDS in more than one section. As per the nature of transaction, user has to delete the tax codes which are not relevant for that transaction.

Project:

PARINAAM


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1.9


Items

% of TDS

Professional Fees ( 194J)

10

Contractors ( 194C) Advt.

1

Interest from Bank 194 A

10

Contractors (194C) Other than Advt.

2

Lower deduction of TDS (TDS Exemption) In case , if any vendor provides certificate of exemption, respective effect will be given in vendor master which will ensure deduction of tax at reduced rate of tax for that vendor. Following information has to be maintained in Vendor master:    

Exemption Exemption Exemption Exemption

certificate Number Validity Period percentage Volume

1.10 TDS Deduction Process During Vendor Invoice During vendor invoice as per TDS codes assignment (in vendor master) respective TDS will be deducted. During Vendor Advance (Down Payment) At the time of vendor advance as per TDS codes assignment (in vendor master) respective TDS will be deducted. Down payment adjustment with Invoice When user will adjust the vendor advance with invoice, system will reverse the TDS amount proportionately. At the time of making advance payment to Vendors TDS amount is deducted for the advance payment. On receipt of final Invoice from Vendor, Advance payment earlier will be reversed in full including the TDS amount and the Invoice will be entered for the full amount capturing the relevant TDS amount. Subsequent Adjustments in TDS deducted In case of error of deduction of TDS, subsequent adjustments can be done only through specific function of TDS JV available in CIN. The changes may be in TDS code or amount deducted. Depending upon the stage when adjustment is made, system can generate accounting entry. 1.11 Remittance Challan Process Remittance Challan will be generated through the system. This remittance Challan will propose the amount which will be used to prepare the Challan physically (This function does not generate the Challan form). This step will clear open items in the account of TDS Payable and credit the bank. This means this will effect bank payment of TDS. Challan Update Process Update bank details (Basic Statistical Return (BSR) code, payment date and Challan number) in the system after depositing the money in the bank.

Project:

PARINAAM


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1.12 TDS Certificate TDS certificates are to be issued quarterly. The certificate has to be issued after downloading from IT website. In case the certificate is printed wrongly and needs to be cancelled, the cancellation will be possible through system. In such an instance, the number given to that certificate stands cancelled and cannot be used again. In case of specific requests from vendors, TDS Certificates already issued can be reprinted with “DUPLICATE” clearly printed on the face of the certificate. It is also to be noted that certificate needs to be printed in the first instance rather than preview. Print preview will be considered as original certificate generated. 1.13 Quarterly e-filing of Challan Quarterly e-file report can be generated and filed. 1.14 Works Contract Tax (WCT) During Vendor Invoice During vendor invoice as per WCT codes assignment (in vendor master) respective WCT will be deducted. Subsequent Adjustments in WCT deducted Adjustment can be made through WCT JV function, respective entry will be posted. 1.15 Works Contract Tax Codes Different tax code and type will be defined under respective sections, which will be used to deduct tax at the time of payment. Considering WCT rates are not common across India a separate tax type to be created with 2 character for differentiating the states and respective tax code to be mapped. For example: WCT for Tamil Nadu to be mapped as W1 as tax type and 4 % as tax code. This tax code and type to be mapped vendor master at company code level. 1.16 WCT Remittance Challan Process WCT Deduction will be performed in the system as a part of SAP Standard Functionality, However, remittance Challan update, WCT Remittance & Certificate generation are not part of the standard functionality. This will be developed by obtaining MHRIL specific requirements.

Project:

PARINAAM


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4. Business Process Diagram 1.17 Extended With Holding Tax Process

Project:

PARINAAM


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Project:

PARINAAM



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5. Organizational Consideration 1

Organization Structure Consideration

2

 Company Code = 1025 (MHRIL Designated)  Chart of Accounts Master Data Considerations (including all relevant data relationships)

3

 Existing TDS & WCT rate through Supplier Master or customer if required. System Configuration Considerations  Vendor master  Customer master

6. Changes to Existing Organization Process 4

Changes observed/Suggested  None.

7. Description of Improvements  Better tracking of documents through the entire process of TDS.  Duplicate certificates can be printed from the system through secured authorization level. The original certificate will be printed once only.  Handling of special scenario such as reduced rates of deduction is driven by standard SAP system.  Quarterly e-file generated by the system.

8. Functional Deficit  Tax computation, deduction and accounting for WCT will be system driven but, Certificate will not be generated through system.

9. Approach to Cover Functional Deficit  Printing of certificate for WCT to be managed out of the system. System will give the available data.

10. Integration & Interface Considerations 5

Integration

6

None. Interfaces None.

11. Reporting Requirements 7

Standard Reports Sl. No

Requirements

SAP reports

1

MIS on TDS

J1INMIS

2

Certificate Printing

J1INCERT

Project:

PARINAAM


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8


Developed Reports REPORTING WWRICEF-ID

Description

Report Type (ABAP,

Data Elements

Relevant KPI

Owner

BI, BOBJ) Printing of WCT

Forms

Certificate

12. Data Migration 9

Data Conversion / Historical Data

 TDS codes to be attached to vendors subject to TDS.  WCT Codes to be attached to vendors subject to WCT. 10 Data Validation and Reconciliation  Vendor master data with historical value will be provided to MHRIL in specified format /template.  MHRIL to validate and reconcile the data for consistency and correctness. 11 Data Cleansing Requirement  For Completeness and correctness all data cleansing related activity will be performed by MHRIL. 12 Scope No

13. Enhancements & Forms 13 Functional Deficit Yes 14 Enhancements Enhancements WRICEF-ID

Description

Data Object (Vendor Invoices)

MHRIL-FI-02-02111

Work Contract Tax Certificates printing

Functiona l Gap

Alternative SAP Standard

System Does not support

Customization

Reason

Owner

Finance

15 Outputs (e.g. Forms) OUTPUT / FORMS WRICEF-ID

Description

XX-xxO001 XX-xxO002

Tax Certificates

Project:

Data Object (Sales Order)

Output Type (Form, EDI, etc.)

Frequency

Volumes

Owner

Attachment

Tax Challans

PARINAAM


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14. Authorization Requirements D – Direct fit, W – Work around, N – Not in SAP, C – Customization Activity

Data Input

Data Output

Responsibility / Authorization

Remark s

Create Invoice / Down payment for TDS vendors.

1

Company Code, Vendor No, TDS, Amount.

FI Document with TDS

D

Create TDS JV for subsequent adjustments

2

Document number

Accounting document generated

D

Create Remittance Challan

3

Co Code, Section Code, TDS Section, Recipient Type

Remittance Challan generated and amount proposed.

D

Create Bank Challan

4

Co Code, Section Code, TDS Section, Recipient Type, Bank Challan No. and House Bank

Bank Details updated in Remittance Challan

D

Quarterly efile

4

Co Code, Section Code, TDS Section, Recipient Type

Quarterly e-file generated.

D

Certificate Printing

Ad hoc

Vendor, date range, document range.

Printed Certificate

D

Provision

5

Co Code, PO#, Vendor

Provision created

D

Processing System (SAP, Non-SAP)

15. Workflow Requirements None.

16. Traceability Matrix

Project:

PARINAAM


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KPMG Process Process No

Project:

TCS-MHRIL BBP

Process Title

Process No

Process Title

Page No

7.1

TDS rate updation

3.1

Tax Codes

13

7.4

TDS filing

3.7

Quarterly filing

15

7.5

Issuance of certificate

PARINAAM

3.6 & 3.10


TDS/WCT Certificate

15 & 16

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Sap Fico-tax Processes (2)

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