Overview

Some taxes apply on top of other taxes—like a cess added to GST. iVendNext supports these compound tax setups for accurate, compliant calculations. This guide shows how to configure taxes on taxes and charges.

1. What are Taxes on Taxes and Charges?

Taxes on taxes and charges refer to situations where a secondary tax or charge is applied on top of a primary tax or charge. This is common in many tax regimes where additional levies (e.g., education cess, health cess) are applied on the base tax amount.

Example:

• A product has a GST of 18%.

• An education cess of 2% is applied on the GST amount.

• The total tax would be 18% GST + 2% cess on GST.

2. Why is Advanced Tax Configuration Important?

• Compliance: Ensures that your business complies with tax regulations that require compounding taxes.

• Accuracy: Prevents errors in tax calculations by automating the application of taxes on taxes and charges.

• Transparency: Provides clear breakdowns of taxes and charges in invoices, improving transparency for customers and auditors.

• Flexibility: Allows businesses to handle complex tax scenarios, such as multiple layers of taxes or surcharges.

3. How to Configure Taxes on Taxes and Charges in iVendNext

iVendNext allows you to configure taxes on taxes and charges through the Sales Taxes and Charges Template or Purchase Taxes and Charges Template. Here’s how you can set it up:

3.1 Prerequisites

Before configuring taxes on taxes and charges, ensure that:

• The primary tax (e.g., GST, VAT) has been set up in the Sales Taxes and Charges Template or Purchase Taxes and Charges Template.

• The secondary tax or charge (e.g., cess, surcharge) has been defined.

3.2 Steps to Configure Taxes on Taxes

1. Navigate to the Item Tax Template:

• Go to Home > Accounting > Tax Masters > Item Tax Template.

2. Edit the Tax Template:

• Select the tax template you want to configure (e.g., "GST 18%").

• Click on Edit to modify the template.

3. Add a Secondary Tax or Charge:

• Add a new row for the secondary tax or charge (e.g., "Education Cess").

• Set the Type to "On Previous Row Amount" or "On Previous Row Total".

• On Previous Row Amount: The secondary tax is calculated on the amount of the primary tax.

• On Previous Row Total: The secondary tax is calculated on the total amount (base price + primary tax).

• Specify the Row Number to indicate which row (primary tax) the secondary tax should be applied to.

4. Configure the Secondary Tax:

• Account Head: Select the account for the secondary tax (e.g., "Education Cess").

• Rate: Enter the tax rate (e.g., 2%).

• Description: Add a description for the tax (e.g., "Cess on GST").

5. Save the Template:

• Click Save to save the changes.

3.3 Example of Taxes on Taxes

Scenario: A product has a GST of 18% and an education cess of 2% on the GST amount.

Steps:

1. Create a Sales Taxes and Charges Template for 18% GST.

2. Add a new row for Education Cess with a 2% rate.

3. Set the Type to "On Previous Row Amount" and specify the row number for GST.

4. When a sales transaction is created, the system will automatically calculate the 18% GST and then apply the 2% cess on the GST amount.

4. Key Features of Advanced Tax Configuration

4.1 Multiple Layers of Taxes

iVendNext allows you to configure multiple layers of taxes, such as a primary tax, a secondary tax on the primary tax, and even a tertiary tax on the secondary tax.

4.2 Tax on Charges

You can also apply taxes on additional charges like shipping, handling, or insurance. For example, a GST of 18% can be applied to the shipping charge.

4.3 Automatic Calculations

Once configured, iVendNext automatically calculates the taxes on taxes and charges, ensuring accuracy and reducing manual effort.

5. Important Points To Remember

Some of the key points to remember are:

• Clear Documentation: Maintain clear documentation of all tax configurations, including primary and secondary taxes, for easy reference and auditing.

• Regular Reviews: Regularly review and update tax configurations to ensure compliance with changing tax regulations.

• Testing: Test advanced tax configurations in a controlled environment before applying them to live transactions.