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India Statutory Requirementsand SAP Functionalities

Country India version Overview

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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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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

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


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


• 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



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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Purchase Order

Goods receipt



The Purchasing Cycle - Domestic• Goods receipt transaction captures the following data, referring to the vendor excise 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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Purchase Order

Goods receipt

CENVAT credit


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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Purchase Order

Goods receipt



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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Purchase Order

Goods receipt



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




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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Purchase Order


Goods Receipt

CENVAT CreditCENVAT Credit““on hold”on hold”


IntimationIntimation

CENVAT CreditCENVAT CreditAvailmentAvailment

The Purchasing Cycle - Consumables

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Purchase Order


Goods Receipt

CENVAT CreditCENVAT Credit““on hold”on hold”


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


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


Goods Receipt


• Based on the component requirement and availability, the same are transferred to the sub contractor’s site.


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


• 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)


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


Goods Receipt


External Sub Contract Cycle• Goods receipt transaction captures the following data, referring to the 57f4 document 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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Transfer Posting

Purchase Order


Goods Receipt

57f4 Completion


• 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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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 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


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





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





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





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)




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





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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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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The Sales Cycle


Sales Order



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


Sales Order

CENVAT Utilization


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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The Sales Cycle


Sales Order


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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The Sales Cycle


Sales Order



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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