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Payroll India (PY-IN)
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Income Tax
Purpose
This component computes tax on the income received by an employee for a financia
l year.
Income of an employee may consist of all or any of the following components:
Regular Income - This is that part of the salary, which an employee receives ev
ery month and is projected for the entire financial year. For example, Basic Pay
, House Rent Allowance, Conveyance Allowance.
Monthly regular income - Mon Reg Income wage type (/124). This wage type is the
cumulation of the values of all the wage types for which you have configured th
e Cumulation Class as 24.
Annual regular income - Ann Reg Income wage type (/410)
The value of Ann Reg Income wage type (/410) is the sum of:
i. Value of Mon Reg Income wage type (/124) in the Cumulative Results Table
ii. Value of Mon Reg Income wage type (/124) for the current period
iii. Value of Mon Reg Income wage type (/124) for the current period, multipl
ied by the value of Projection Factor wage type (/401)
Note
Value of the Projection Factor wage type (/401) is the number of remaining peri
ods that payroll has to be run in the current financial year, for the employee.
The projection of the remaining periods can be until the end of the financial y
ear or until the employee is terminated or the retirement date of the employee,
whichever is the earliest.
System projects the annual regular income using either Actual Basis or Nominal
Basis. The system by default uses Actual Basis to project annual regular income.
You can access this from the IMG for Payroll India: Tax ? Maintain Annual Taxab
le Income.
We recommend that you use a single tax calculation method, either Actual Basis o
r Nominal Basis throughout the financial year, to project the annual regular inc
ome.
Irregular Income - This is that part of the salary, which an employee receives
for a particular period and is not projected for the entire financial year. For
example, Leave Travel Allowance, Bonus.
Monthly irregular income - Mon Irr Income wage type (/125). This wage type is t
he cumulation of the values of all the wage types for which you have configured
the Cumulation Class as 25.
Annual irregular income - Ann Irr Income wage type (/411)
The value of Ann Irr Income wage type (/411) is the sum of:
i. Value of Mon Irr Income wage type (/125) in the Cumulative Results Table
ii. Value of Mon Irr Income wage type (/125) for the current period
Perquisite - Example, Housing Perk, Loan Interest Advantage.
Annual Perk wage type (/127)
Annual Perk wage type (/413)
The value of Annual Perk wage type (/413) is equal to the value of Annual Perk w
age type (/127).
Previous Employment Salary
Prev Gross salary wage type (/4V1)
Val of perk u/s 17(2) wage type (/4VJ)
Profts wrt sal u/s 17(3) wage type (/4VK)
These values are captured directly through the Previous Employment Tax Details i
nfotype (0580). In case you have configured Multiple Form 16, these values are a
utomatically captured in the system when an employee gets transferred from one g
roup of the company to another group in a financial year.
Income from Other Sources
Any other Income wage type (/131)
This includes the income captured through Income From Other Sources infotype (05
84) Other Sources subtype (0002), and the profit and loss from House Property.
Implementation Considerations
SAP provides you with the following configurations:
The slab codes are defined in the table view Slab Codes for Taxation (V_T7INT1)
for a financial year/years.
The different taxation slabs for the tax codes are defined in the table view Ta
xation Slabs (V_T7INT3).
These are legal settings and you cannot modify them.
Integration
India Income Tax computations payroll function (INTAX) computes the tax on the i
ncome received by an employee for a financial year.
Features
The system calculates the income tax for an employee after taking into considera
tion the following:
Exemption
Medical Exemption - Exm.under pro.to sec17(2) wage type (/414)
Section 10 Exemptions - Exemption U/S 10 wage type (/130)
The value of Exemption U/S 10 wage type (/130) is the sum of the values of:
CEA Annual Exemption wage type (/4E1) - Exemption on Child Education Allowance
CHA Annual Exemption wage type (/4E2) - Exemption on Child Hostel Allowance
Conveyance Annual Exempt wage type (/4E3) - Conveyance Exemption
HRA Annual Exemption wage type (/4E4) - Exemption on House Rent Allowance
LTA Annual Exemption wage type (/4E5) - Exemption on Leave Travel Allowance
Prev exemp u/s10 wage type (/4V2) - Previous Employment Exemptions
Voluntary Ret. Exemption wage type (/4E6) - Exemption on Voluntary Retirement
Leave Salary Exemption wage type (/4E7) - Leave Exemption Allowance
Gratuity Cont. Exemption wage type (/4E8) - Gratuity Exemption
Note
In addition to these wage types, you can define your own annual exemptions for a
llowances and reimbursements using the General Payroll function for Allowance/Re
imbursement Treatment (INCTX).
Deduction
Aggregate Deduction - Aggrg Deduction wage type (/424)
The value of Aggrg Deduction wage type (/424) is the equal to the value of Empmn
t tax (Prof Tax) wage type (/422) - Professional Tax.
Note
Empmnt tax (Prof Tax) wage type (/422) includes the value of Prev prof. tax paid
wage type (/4V3).
Chapter VI Section 80 Deductions - Agg of Chapter VI wage type (/432)
Relief
Section 89(1) Relief - Sec 89 relief wage type (/451)

The system also takes into consideration the following components of tax while p
rocessing income tax for an employee:
Surcharge on Income Tax
Surcharge of 10% is applicable on Tax payable wage type (/446) if the value of t
he Total Income wage type (/434) is greater than INR 10,00,000.
The total income tax (including surcharge), that is, the value of Tax payable an
d surcharge wage type (/450) cannot exceed the sum of:
Income tax on INR 10,00,000
Amount of income that exceeds INR 10,00,000, which is the difference between th
e value of Total Income wage type (/434) and INR 10,00,000.
Example
Education Cess
All employees have to pay an education cess of 2%. Education cess is calculated
as 2% of the sum of tax payable and surcharge. The India Income Tax computations
payroll function (INTAX) calculates and stores the amount of education cess in
the Education Cess wage type (/449).
The value of /449 = 2% (/446 + /448).
Secondary and Higher Education Cess
All employees have to pay a secondary and higher education cess of 1%. The india
Income Tax computations payroll function (INTAX) calculates and stores the amou
nt of secondary and higher education cess in Sec and Higher Educ Cess wage type
(/447).
The value of /447 = 1% (/446 + /448).
Voluntary Tax
An employee can choose to pay certain amount of tax, which is not based on any o
ther component. The Voluntary tax deduction rule (INVT) calculates this Voluntar
y Tax. The system provides you with three options for voluntary tax deduction:
Deduction of an additional tax amount in a period without changing the annual t
ax deduction amount. The value of Income Tax wage type (/460), calculated for t
he period by India Income Tax computations payroll function (INTAX), is increase
d by this additional amount. This additional tax that is deducted in a particula
r period is adjusted in the following payroll periods. You have been provided wi
th the model wage type Voluntary Tax (MVT0) for this purpose. HR-IN: Voluntary
tax deduction rule (INVT) reads the value of Voluntary Tax wage type (MVT0) and
uses the applicable tax rates of surcharge and education cess to divide this amo
unt into the following tax components:
Tax payable
The tax payable value is added to the value of Monthly Tax Payable wage type (/4
MT).
Education cess
The education cess value is added to the value of Monthly Education Cess wage ty
pe (/4ME).
Surcharge
The surcharge value is added to the value of Monthly Surcharge wage type (/4MS).
Deduction of a fixed tax amount in a period without changing the annual tax ded
uction amount. The value of Income Tax wage type (/460), calculated for the per
iod by India Income Tax computations payroll function (INTAX), is replaced by t
his fixed amount. Tax deduction in the following periods is adjusted accordingly
. You have been provided with the model wage type Voluntary Tax (MVT1) for this
purpose. HR-IN: Voluntary tax deduction rule (INVT) reads the value of Voluntar
y Tax wage type (MVT1) and uses e applicable tax rates of surcharge and educatio
n cess to divide this amount into the following tax components:
Tax payable
The tax payable value replaces the value of Monthly Tax Payable wage type (/4MT)
.
Education cess
The education cess value replaces the value of Monthly Education Cess wage type
(/4ME).
Surcharge
The surcharge value replaces the value of Monthly Surcharge wage type (/4MS).
Deduction of a fixed amount of voluntary tax over the annual tax liability. The
Voluntary tax deduction rule (INVT) generates the Additional Voluntary Tax wage
type (/462) for this fixed amount. The value of Income Tax wage type (/460), c
alculated for the period by India Income Tax computations payroll function (INTA
X), is increased by the value of Additional Voluntary Tax wage type (/462). This
additional tax that is deducted is not adjusted in the following periods of the
financial year. The total tax deducted in the year is increased by this fixed a
mount of voluntary tax. You have been provided with the model wage type Voluntar
y Tax (MVT2) for this purpose. The rule reads the value of Add. Voluntary Tax w
age type (MVT2) and generates Additional Voluntary Tax wage type (/462). HR-IN:
Voluntary tax deduction rule (INVT) then uses the applicable tax rates of educat
ion cess and surcharge to divide the value of Additional Voluntary Tax wage type
(/462) into the following wage types:
Voluntary Tax Payable wage type (/4LT)
Voluntary Education Cess wage type (/4LE)
Voluntary Surcharge wage type (/4LS)
Tax on Arrears
Tax on Bonus
The system allows you to generate the following tax reports:
Form 16
Form 24
See also:
Previous Employment Tax Details

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