Purchase Tax Calculations

Purchase Tax Calculations

Accurate tax calculation on purchase bills is essential for compliance, proper accounting, and claiming input tax credits. EquiBillBook automatically calculates taxes based on your configuration, item settings, and supplier information.

How Purchase Tax Calculation Works

Tax is calculated automatically based on:

• Item tax settings (each item can have a tax rate)
• Supplier tax settings (supplier-specific tax rules)
• System tax configuration (GST/VAT rates)
• Place of supply rules (for GST)
• Tax calculation method (inclusive or exclusive)

Tax Types Supported

EquiBillBook supports various tax systems for purchases:

• GST (India): CGST, SGST, IGST, UTGST, CESS
• VAT: Value Added Tax
• Purchase Tax: Purchase-specific tax systems
• Custom Taxes: Configurable tax types

GST Calculation (India)

For GST on purchases, the system calculates:

• CGST + SGST: For intra-state purchases (same state)
  • Tax is split between Central GST and State GST
  • Example: 18% GST = 9% CGST + 9% SGST
  • You can claim input tax credit for both
• IGST: For inter-state purchases (different states)
  • Integrated GST applies to the full rate
  • Example: 18% IGST
  • You can claim input tax credit for IGST

Place of Supply for Purchases

The place of supply determines tax type:

• Same state: CGST + SGST applies
• Different state: IGST applies
• Union Territory: CGST + UTGST applies
• System automatically determines based on supplier and business location

Item-Level Tax

Each item can have:

• Tax rate assigned (e.g., 5%, 12%, 18%, 28%)
• HSN/SAC code for tax classification
• Tax type (GST, VAT, etc.)
• Tax exemption status

When you add an item to a purchase bill, its tax rate is automatically applied.

Tax-Inclusive vs Tax-Exclusive Pricing

Your system may use either method:

• Tax-Inclusive:
  • Price includes tax
  • Example: ₹1,180 (includes ₹180 GST at 18%)
  • Tax amount = Price × (Tax Rate / (100 + Tax Rate))
• Tax-Exclusive:
  • Price excludes tax
  • Example: ₹1,000 + ₹180 GST = ₹1,180
  • Tax amount = Price × (Tax Rate / 100)

Tax on Discounts

Tax calculation after discounts:

• Tax is usually calculated on the discounted amount
• Item discount reduces taxable amount
• Bill discount reduces taxable subtotal
• Tax is calculated on the net amount (after discounts)

Multiple Tax Rates

If items have different tax rates:

• Each item's tax is calculated separately
• Tax amounts are summed for total tax
• Bill shows breakdown by tax rate (if configured)
• Tax summary shows total tax by type (CGST, SGST, IGST, etc.)

Input Tax Credit (ITC)

For GST, you can claim input tax credit:

• CGST paid can be set off against CGST liability
• SGST paid can be set off against SGST liability
• IGST paid can be set off against IGST, CGST, or SGST liability
• ITC is available only if supplier has filed returns
• ITC reports help track available credits

Tax Exemptions

Some items or suppliers may be tax-exempt:

• Items marked as tax-exempt (0% tax)
• Suppliers with tax exemption certificates
• Import transactions (may have different tax treatment)
• Special tax exemptions based on rules

Reverse Charge Mechanism

For reverse charge (if applicable):

• You pay tax directly to government
• Bill indicates reverse charge
• Tax is not paid to supplier
• You can claim ITC on reverse charge tax
• Compliance with tax regulations

Viewing Tax Breakdown

The purchase bill typically shows:

• Subtotal (before tax)
• Tax breakdown by type (CGST, SGST, IGST, etc.)
• Total tax amount
• Grand total (subtotal + tax)
• Tax rates applied

Editing Tax

You may be able to:

• Override item tax rate (if permitted)
• Apply different tax rate manually
• Remove tax for specific items
• Add tax to exempt items

Note: Tax editing may be restricted based on permissions and compliance requirements.

Tax Configuration

Configure tax settings in:

• Settings → Tax Settings: Set up tax rates and types
• Item Settings: Assign tax rates to items
• Supplier Settings: Configure supplier tax preferences
• Purchase Settings: Set tax calculation method

HSN/SAC Codes

Harmonized System of Nomenclature (HSN) or Service Accounting Code (SAC):

• Required for GST compliance in India
• Assigned to items in item master
• Appears on purchase bill for tax reporting
• Helps in tax return filing and ITC claims

Tax on Import Purchases

For import purchases (Bill of Entry):

• Customs duty may apply
• IGST applies on imports
• Additional cess may apply
• Special handling for import documentation

Best Practices

• Keep tax rates updated in your system
• Verify item tax settings are correct
• Review tax calculations before finalizing bills
• Ensure HSN/SAC codes are accurate
• Understand place of supply rules for your region
• Verify supplier GST registration for ITC
• Consult with your accountant for tax compliance
• Regularly review tax reports for accuracy

Troubleshooting

Common tax calculation issues:

• Tax not calculating: Check item tax settings and system configuration
• Wrong tax rate: Verify item tax rate and supplier settings
• Wrong tax type: Check place of supply and supplier location
• Tax amount mismatch: Review tax calculation method (inclusive vs exclusive)
• Missing HSN code: Ensure items have HSN/SAC codes assigned
• ITC not available: Verify supplier GST status and return filing

Tax Reports

Use tax reports to:

• Verify tax calculations
• Prepare tax returns
• Track input tax credit
• Reconcile tax paid
• Identify discrepancies
• Comply with tax regulations

Compliance Considerations

• Tax calculations must comply with local regulations
• Purchase bills must show tax breakdown as required
• Tax rates must be current and accurate
• Tax exemptions must be properly documented
• ITC claims must be valid and supported
• Consult with tax professionals for complex scenarios

Accurate purchase tax calculation is critical for compliance, claiming input tax credits, and maintaining proper financial records. Ensure your tax settings are configured correctly and review calculations regularly.