Deeper: India Statutory Requirements and SAP Functionalities

India Statutory Requirements and SAP Functionalities
Country India version Overview
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Introduction to India Statutory Requirements

The modules affected by India statutory requirements are FI, MM & SD
FI
SD
MM
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Financial reporting is supported by the standard SAP package
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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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The MM Module
FI
SD
MM
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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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The Purchasing Cycle

Purchase Order
Excise Invoice Capture
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
Goods Receipt
CENVAT Credit
Country India version related transactions are depicted in a different font
Invoice Verification
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Introduction to Excise Duty

Component Inventory value Rs. 6600 Credit Available :Rs. 0
Component
Rs. Basic Price - 5000 Excise Duty - 1000 LST/CST - 600 Total Price - 6600
Component Inventory value Rs. 5600
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
Credit Available :Rs. 1000
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The Purchasing Cycle - Domestic

Purchase Order
Vendor Excise Invoice
Local / Central sales tax is determined upon the location of the sale & the Ship-to-party region Sample Pricing is as below :
Description Basic Price Excise Duty (20% of A) Total Excise Duty Sub Total (A + C) Local Sales Tax (10% of D) Grand Total INR 5000.00 1000.00 1000.00 6000.00 600.00 6600.00
Goods receipt
A B C D E F
CENVAT credit
Either Local sales tax or central sales tax is applicable on any one item.
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The Purchasing Cycle

Purchase Order
Goods receipt
The following data is captured referring to the Vendors excise invoice Purchase order number Material number Quantity Excise rate Excise amount
CENVAT credit
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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Purchase Order
Goods receipt
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
CENVAT credit
The information captured in this transaction forms the basis for updating the statutory records regarding quantity related information
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Purchase Order
Data captured referring to the Vendors excise invoice are posted No Inventory Valuation is carried out in this transaction Accounting entries are made in the clearing account for excise
Goods receipt
CENVAT credit
The information captured in this transaction forms the basis for updating the statutory records regarding value related information
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Purchase Order
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
Goods receipt
CENVAT credit
Inventory re-valuation takes place in case of corrections to excise invoice amount
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Purchasing from Overseas Sources

Create purchase requisition Purchase requisition Request for quotation Invoice verification
Create Request for quotation
Analysis of purchase order values Enter invoice
Quotation
Maintain quotation
Goods receipt Goods receipt for purchase order Clearance from Port, LC Activities, Customs Assessment Shipping notification
Purchase order Order Acknowledge ment Create order acknowledgement
Create purchase order reference to request for quotation
Create shipping notification
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The Purchasing Cycle - Imported

Purchase Order
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 :
A B C D E F G H Description Basic Price Customs Duty Basic (20% of A) Special Customs (5% of A) Total Customs Sub Total (A + D) Counter Vailing Duty CVD (13% of E) Sub Total (E + F) Special Additional Duty (4% of G) Grand Total INR 5000.00 1000.00 250.00 1250.00 6250.00 812.50 7062.50 282.50 7345.00
Goods receipt
CENVAT credit
In an imported purchase order, the CVD component is used for availing CENVAT credit. rates.
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The other components vary based on prevailing .

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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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The Purchasing Cycle - Consumables

Purchase Order
Intimation
CENVAT Credit Availment
Goods Receipt
CENVAT Credit on hold
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The Purchasing Cycle - Tools

Purchase Order
Intimation
Goods Issue
Goods Receipt
CENVAT Credit Availment
CENVAT Credit on hold
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External Sub Contract Cycle

Purchase Order
Sample Pricing is as below :

A Description Processing Charges Grand Total INR 5000.00 5000.00
Transfer Posting
57f4 Document Generation
Goods Receipt
57f4 Completion
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.
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Purchase Order
Based on the component requirement and availability, the same are transferred to the sub contractors site.
Transfer Posting
Goods Receipt
57f4 Completion
The transferred stock are shown as part of the valuated stock of the enterprise, but lying with the sub contractor
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Purchase Order
Transfer Posting
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)
Goods Receipt
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
57f4 Completion
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Purchase Order
Transfer Posting
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
Goods Receipt
57f4 Completion
CENVAT account can be credited only after complete receipt of the purchase order items (processed items)
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Purchase Order
Transfer Posting
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
Goods Receipt
Receipt of processed goods within 180 days is crucial
57f4 Completion
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Inventory valuation
Component Credit reversed : Rs.500
Component
Rs. Basic Price 5000 Excise Duty 500 Total Price 5500 Credit Available :Rs. 1000 Credit Debited :Rs. 500 (when the component is sent to the job worker) Component CENVAT debited : Rs.1000
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The FI Module
FI
SD
MM
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The process affected by India statutory requirements is the Withholding tax known as the tax deducted at source
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Tax Deductions at Source

Down Payment to Vendor TDS Payments
Challan Updation
Down Payment Clearing
TDS Certificate Printing
TDS Entry on balance amount
Annual Returns
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Vendor payment
TDS liability is set up at the time of provision or payment whichever is earlier
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Vendor Down Payment

Down Payment to Vendor
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
Vendor payment
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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
Vendor payment
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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
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)
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
Vendor payment
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TDS payments
TDS Payments
Challan Updation
For 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)
Annual Returns
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Other TDS Activities

TDS Payments
Challan Updation
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
Annual Returns
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Tax Deductions at Source

CIN uses SAPs 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
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The SD Module
FI
SD
MM
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The process affected by India statutory requirements is the pricing procedure for Sales tax & CENVAT credit utilization
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The Sales Cycle

Sales Order
Creation of Delivery
The pricing elements of a sales order should contain the following Basic price less all discounts Excise duty Sales tax Entry tax
CENVAT Utilization
Excise Invoice
Commercial Invoice
The pricing structure is similar to that of the vendor pricing.
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Tax Element in Sales Cycle

Sales Tax
Customer within the same state as the delivering plant
Manufacturing Plant / Sales Depot Customer outside the state of the delivering plant
Sales tax is calculated on (Base Price + Excise duty)

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The Sales Cycle

Sales Order
The delivery of a sales order includes Picking & Packing of goods as per the Sales order
CENVAT Utilization
Excise Invoice
There is no change in functionality of Delivery due to India statutory requirements
Commercial Invoice
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The Sales Cycle

Sales Order
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
CENVAT Utilization
Excise Invoice
If credit is not available, then duty amount is to be deposited to the government
Commercial Invoice
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The Sales Cycle

Sales Order
CENVAT Utilization
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
Excise Invoice
An excise invoice can be combined with the commercial invoice if required
Commercial Invoice
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The Sales Cycle

Sales Order
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
CENVAT Utilization
Excise Invoice
* The invoice needs to move along with the goods
Commercial Invoice
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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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Deeper: India Statutory Requirements and SAP Functionalities

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India Statutory Requirements and SAP Functionalities

Country India version Overview

Copyright Corporation 2003

Introduction to India Statutory Requirements

Financial reporting is supported by the standard SAP package

Introduction to India Statutory Requirements

Payment to service vendors

The Purchasing Cycle

Excise Invoice Capture

Country India version related transactions are depicted in a different font

Introduction to Excise Duty

Component Inventory value Rs. 5600

Credit Available :Rs. 1000

The Purchasing Cycle - Domestic

Vendor Excise Invoice

The Purchasing Cycle

Vendor Excise Invoice

The Purchasing Cycle - Domestic

Vendor Excise Invoice

The Purchasing Cycle - Domestic

Vendor Excise Invoice

The Purchasing Cycle - Domestic

Vendor Excise Invoice

Inventory re-valuation takes place in case of corrections to excise invoice amount

Purchasing from Overseas Sources

Create Request for quotation

Analysis of purchase order values Enter invoice

Purchase order Order Acknowledge ment Create order acknowledgement

Create purchase order reference to request for quotation

Create shipping notification

The Purchasing Cycle - Imported

Counter veiling duty depends upon on the material type as

Vendor Excise Invoice

The other components vary based on prevailing .

The Purchasing Cycle - Capital Goods

The Purchasing Cycle - Consumables

Excise Invoice Capture

CENVAT Credit Availment

CENVAT Credit on hold

The Purchasing Cycle - Tools

Excise Invoice Capture

CENVAT Credit Availment

CENVAT Credit on hold

External Sub Contract Cycle

Sample Pricing is as below :

57f4 Document Generation

External Sub Contract Cycle

57f4 Document Generation

External Sub Contract Cycle

57f4 Document Generation

External Sub Contract Cycle

57f4 Document Generation

External Sub Contract Cycle

57f4 Document Generation

Receipt of processed goods within 180 days is crucial

External Sub Contract Cycle

Tax Deductions at Source

Down Payment Clearing

TDS Certificate Printing

TDS Entry on balance amount

TDS liability is set up at the time of provision or payment whichever is earlier

Vendor Down Payment