Set Tax Parameters – A summary of the activity

Through this activity, you can set parameters that determine the functioning of tax processing. It involves specifying the following.

• Cut-off for Tax Proof Submissions

• Allow modifications of previous year’s tax data

• Process period for taxation based on

• Supplemental tax rates

Cut-off for Tax Proof Submissions: You are to specify the date from which the system must compute tax depending upon the proofs submitted by the employee and not on the declarations made by him/her earlier. It indicates that until the date specified, the system computes tax based on the declarations made by the employee seeking tax exemptions and later, it computes taxes depending on the proofs submitted by the employee.

Note that declaration is a statement, given by the employee requesting the employer not to deduct taxes as he/she plans to invest money in different items for the tax year that would yield tax exemptions. The items can be bonds, saving certificates, etc.

Allow Modifications of previous year’s tax data: You are to indicate whether the user can modify the data of an earlier tax year records or not.

Process Period for taxation based on: You can specify the parameter depending on which the system identifies the process period that must be included in a particular tax year. The parameter can be “From” or “To”. This is necessary if two tax years overlap in one process period.

For example, if a process period starts from 15^th of March and ends on 15^th of April 2002. it indicates that the period from 15^th March to 31^st of March lies in the tax year 2002 and from 1st of April to 15^th of April lies in the tax year 2003. If you specify, “From” parameter, it indicates that the process period must be included in the tax year 2002. If you specify “To” parameter, it indicates the process period must be included in the tax year 2003 for various tax related computations.

Note that an Indian tax year begins from 1^st of April and ends on 31^st March of the subsequent calendar year.

Supplemental tax rates: You must indicate whether the supplemental tax rates are applicable for computation of taxes or not. To indicate that the supplemental tax rates are not applicable select “Not Applicable” value.  To indicate that the supplemental tax rates are applicable, you are to specify the method for computing the tax rate. 

• Select “Average Rate” option to indicate that the tax rate is computed by dividing the total taxable amount calculated on the total income and multipied by 100.

• Select  “Slab Rate” option to indicate that the tax rate is in relation to the highest slab of total income, as specified in the Finance Act of the relevant year.

For example, suppose the total taxable income is Rs 2,00,000 of which Rs 1,50,000, is regular income and the supplemental income is Rs 50,000.

Let us assume the following is the income tax rate applicable for the taxable income.

Re1 -- Rs 50,000 is 10%

Rs 50,000 --- Rs 1,50,000 is 20%

Rs 1,50,000 --- Rs 5,00,000 is 30%

If you specify the tax rate method as “Slab Rate Method”, the system computes the tax amount as 30% of 50,000 amounts Rs 15,000.

If you specify the tax rate method as “Average Method”, the system computes tax rate as tax amount*100/total taxable income.

The tax amount is computed as Rs 40,000 (10% of 50,000 +20% of 1,00,000 + 30% of 50,000)

The tax rate is 40,000*100/2,00,000 i.e. 20%

Getting familiar with the pages inside

Prerequisites

None

What you can do in this activity

Setting tax parameters

Set tax parameters

You can specify parameters tha determines the tax processing.

• Use the “Set Tax Parameters” page to set the parameters for functioning of tax processing.