Tax Collected at Source Document Reversal for India Localization

[koprivatomas]

Tax Collected at Source (TCS) is a government-imposed tax in India, where sellers collect a percentage of the sale amount from buyers during specific transactions. In cases in which transactions need to be reversed there are processes in place to allow for the correctly calculated amounts to be remitted to the government.

As a prerequisite we recommend to read previous blogs on Tax Collected at Source here: Tax Collected at Source (TCS) in India - SAP Community

Business Overview

Note: Exception 1 and exception 2 in green boxes contain steps which are only applicable in certain scenarios. This blog post explains these scenarios in the following paragraphs.

The process begins with posting of a contract accounting (FI-CA) document then followed by closing of the reconciliation key and transfer of the contract accounting totals into General Ledger Accounting (FI-GL). Afterward a remittance challan can be posted, and an external challan number is added to it.

Exception 1: Deferred Taxes

It is required to post TCS items to a target account before you transfer the Contract Accounting totals records to General Ledger because only cleared tax items can be transferred. Use the report Transfer Posting in FI-CA for Deferred Tax (RFKKXXDFTP) in transaction SM38.

Exception 2: Adjustment Document

In certain document reversal scenarios, an adjustment needs to be executed to correct wrong TCS calculations.

Business Scenarios of Document Reversal

Below is a section on basic business scenarios and TCS calculation.

!!! It's important to know that TCS calculation depends on whether the invoices are above or below the threshold. This also applies to reversals, so the order in which documents are reversed matters for deducting the reversed TCS.

Here’s a simple explanation to help understand the scenarios:

• Null TCS document means that the TCS is not applicable in this case, as the threshold has not been crossed.
• Full TCS document on the other hand means that the full amount of the document is over the threshold and as such is subject to TCS in its entirety.
• Partials TCS document is a combination as part is subject to TCS (1%) and part is not (0%).

In all our scenarios, the threshold is set at 6000.

Case 1: Reversing null TCS doc, leading to full TCS

After cancelling invoice BBB, the total drops to 7000, which is still above the TCS threshold. If we cancel BBB directly, TCS won't be deducted because the original invoice had TCS 0. This is incorrect since BBB exceeds the threshold. So, TCS should be 10 after cancellation.

Case 2: Reversing null TCS doc, leading to partial TCS

After cancelling invoice BBB, we also cancel invoice AAA. This reduces the total to 4000, below the threshold. If we cancel AAA directly, TCS won't be deducted because the original had TCS 0. This is wrong. Only the part of AAA over the threshold should be deducted so as TCS should be 0 after cancellation.

Case 3: Reversing full TCS doc, leading to null TCS

Next, we cancel invoice CCC, reducing the total to 2000, below the threshold. Cancelling CCC directly results in an extra TCS deduction because the original had TCS 20, making it incorrect. Since CCC is now below the threshold, we need to adjust TCS by 20 to correct it as TCS should be 0 after cancellation.

Case 4: Reversing partial TCS doc, leading to full TCS

Cancelling invoice BBB drops the total to 8000, which is still above the TCS limit. If we cancel BBB directly, only part of the TCS is deducted because the original had TCS 20. This is wrong. The full amount should have TCS. We need to deduct further 20 to correct this, as TCS total after the cancellation should be 20.

Case 5: Reversing full TCS doc, leading to partial TCS

After case 1, cancelling invoice CCC lowers the total to 4000, below the TCS limit. If we cancel CCC directly, the full TCS is deducted because the original had TCS 40. This is incorrect. Only the amount over the limit should have TCS. We need to adjust by 20 to fix this. TCS after cancellation should be 0.

First, we need to cancel item AAA similarly to case 2 in previous scenario.

Case 6: Reversing partial TCS doc, leading to null TCS

After cancelling item AAA, item BBB is also cancelled, reducing the total to 0, which is fully below the threshold. If we cancel BBB directly, TCS will be deducted because the original had TCS 20. However, since the total is now under the threshold, no TCS should apply, and adjustment should bring TCS to 0.

Case 7: Reversing partial TCS doc, leading to partial TCS

After cancelling BBB, the total decreases to 4000, partially below the threshold. If we cancel BBB directly, there's a partial TCS deduction because the original TCS was 20, which is correct. Only the amount over the threshold is subject to TCS.

Step by Step Procedure on SAP S/4HANA

To initiate a reversal, select the proper document to be reversed. You can use transaction FKKBIXBIP_MON to reverse invoicing documents or a whole billing document.

In our case we will be reversing an invoicing document. The process is similar in each case.

1. Choose a document, select Change, and Reverse Document.
   
2. In the popped up screen, select a Reversal Reason and execute. The system creates a new document that will adjust the accumulated amounts by the amounts of the reversed document.
   
3. When you reverse a document, a document with a negative amount is created to correct the reversed amounts. However, in certain scenarios, for example, those mentioned in the scenarios earlier in the blog, it is important to execute an adjustment, to amend the incorrect calculations.
4. To execute an adjustment, go to SE38 and use report FKKIN_TCS_ADJREV to create correction on TCS for reversal documents.
5. In SE38 with report FKKIN_TAX_ACCUM_LST, you can display the accumulated TCS Data and view the changes.

Step by Step Procedure on SAP S/4HANA Cloud Private and Public Editions

1. To initiate the reversal process in SAP S/4HANA Cloud, search for the Reverse Document application find the document to be reversed and press the “Reverse” button.
2. When the “Reverse” button is clicked a small window appears in which the reversal reason and other information can be adjusted. After the reversal, fill in the mandatory fields in the Reverse Document selection screen.
   
3. When you reverse a document, a document with negative amounts is created to correct for the reversed amounts. However, in certain scenarios, for example, those mentioned in the scenarios earlier in the blog, it is important to execute an adjustment, to amend the incorrect calculations.
4. To execute an adjustment, find the Process TCS Adjustment Amount for Reversed Document app.
5. These changes can be seen in the Display Accumulation TCS Data application as adjustments with negative amounts.

Note

For detailed information about localization of Tax Collected at Source, refer to this SAP Note 3378880 - FI-CA India: Tax Collected at Source(TCS) localization #12 - SAP for Me