setting up tax categories

 

PRODUCT DETAILS:

Proficient consultants and developers at AXPulse have yet again progressed in their continuous quest of upgrading AX functionality by introducing an add-on of advance payroll tax engine to Payroll module. With the help of this add-on, Payroll Department can create and manage tax deductions to the monthly pay statement as prescribed by the tax authorities of the applicable jurisdiction.

Terminologies used in this article:

TAX COMPONENTS: This is where the different constituents which contribute to tax payable in a period are defined such as gross salary and taxable income.

TAX CATEGORIES: This allows to define the different taxable sources in an organization such as local and overseas employees, or the payroll tax payable by employer in certain jurisdictions.

TAX CATEGORIES GROUPS: Different tax categories can be grouped together which represent different applicable tax rates.

TAX RULES: Perhaps the second most important part of configuring periodic payroll tax, this is where the source/nature of rules that define if the employee’s income is tax deductible or exempt are defined. In simple terms the tax bands of the jurisdiction are defined here.

TAX RULE GROUPS: Different criteria defined as tax rules can be grouped here.

TAX CALCULATION CODES: This is the calculation hub and the most important feature of this add-on. Different calculation codes/formulas can be assigned to the tax components based on the pre-defined tax rules.

 

FUNCTIONALITY WALK-THROUGH:

Prerequisites:

  1. Install Advance Payroll Tax XPO
  2. Disconnect the current/standard tax functionality and the default tax region applicable on each employee.
  3. Assign Tax Category to each individual worker. Setting up tax categories is further defined later in the blog.
  4. Define the fiscal period in the Effective to and from field in order for the functionality to calculate taxable salary on annual basis.

STEP 1: SETTING UP TAX CATEGORIES

This allows to define the different taxable sources in an organization such as local/overseas employees or the employer. Tax Category is assigned to each worker for tax purposes.

Workers are assigned to the tax category on individual basis.

Each tax category can be assigned a separate calculation code.

setting up tax categories

 

STEP 2: DEFINE TAX COMPONENTS

This is where the different constituents which contribute to tax payable in a period are defined. These tax components will later be used in tax calculation codes.

tax components

 

STEP 3: DEFINE TAX RULES

This is perhaps the second most important part of configuring payroll tax add-on. The source/nature of rules that define if the employee’s income is taxable or exempt is defined in this form. The tax rules also define the exact tax band in which the taxable income of an employee falls.

tax rules

 

STEP 4: TAX RULE GROUPS

Similar rules can be grouped together in order to filter the rules on formula form based on rule group selected. For example salary based or employees country of origin/last permanent address/country of residence etc.

tax rule groups

 

STEP 5: TAX CALCULATION CODES

This is the calculation hub and the most important feature of this add-on. Different calculation codes/formulas can be assigned to the tax components based on the applicable tax rules.

The fixed amount and the variable percentage applicable to each tax band is defined here.

calculation codes

Furthermore the annual taxable income is calculated on annual basis by considering the remaining future months available if there is an increment in the monthly salary payable to the employee. Monthly tax liability is calculated with the help of tax liability payable in the future remaining months adjusted with the tax liability settled in the past months of the fiscal year.

Each calculation code can be assigned to many tax categories.

Finally generate earning statements and view a pay statement to observe tax deduction line in accordance to the tax bands defined in tax rules and the annual fixed amount and variable percentage defined in calculation codes.

finally

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