Alternate Financial Year in Payroll India
For greater number of Indian Public Sector Company, have the pay date for a particular pay period falling in the next pay period. For example the pay date for March 2010 falls on the April 5, 2010. Here the salary that the employer pays for March 2010 is realized by the employee in April 2010. In the financial year 2010-2011 the first payment realized by the employee is the one pertaining to March 2010 and the last payment is the one pertaining to February 2011.
This basically shifts the system definition of the Financial Year by a month. This requirement can be mapped using, Alternate Financial Year (AFY) functionality, available in PY-IN. For this solution, the Financial Year is defined as March 01, nnnn to February 28/29, (nnnn+1) and this means, Period 01 – March nnnn and Period 12 – February (nnnn+1), where nnnn is a year.
This solution enables the running of the Indian payroll for all employees in line with Indian statutory and customer business requirements, by setting an alternative Financial Year (AFY) in the system as March to February. The statutory definition of the Financial Year still holds good.
These are below mentioned steps to be followed-
- Activate the Business Function – HCM_LOC_CI_22 using transaction code SFW5 with the help of Basis consultant. This activation is business critical. So before activation check with business owners and also make a back-up of latest system.
- Execute the transaction PC00_M40_SWCH, and activate the switch with the Switch group 40AY
- Organize payroll in such a way that period 01 is March and period 12 is February. You can set this under Customizing for Payroll India —> Basic Settings —>Payroll Organization. And sub-steps are-
- Define a new period parameter in the view ‘T549R’ and assign time unit ’01’.
- Generate payroll periods for the period parameter created in the above step using the report ‘RPUCTP00’, enter the following values in the selection screen of this report
Period parameter – Created in step 1.
Start date – 01 Mar 2009
Final year – 2015
Start date of FY – 0301
Payday rule – 3
Number of days – 5
Determine period number – 2
Generated Periods are shown here-
3. Define a new payroll area in the view ‘T549A’ and assign the period parameter created in step a to the new payroll area
4. Now, generate calendar for cumulations and deductions using the report ‘RPUCTP10’, enter the following values in the selection screen of this report.
Period Parameter – Created in the step 1
Initial year – 2009
Final year – 2015
Start date of FY – 0301
Determine period number –
Tax projection for Regular & Irregular Payments
All the payments form the basis for the calculation of an employee’s gross remuneration and other calculation bases, which are the core part of payroll. All the statutory bases are the starting point for the calculation of social insurance, professional tax, and tax payments, etc. and also for the calculation of net remuneration.
For taxation purposes, if AFY is activated:
- The system will start projecting the regular payment for March (paid in April) for the whole year.
- March (paid in April) will be considered as pay period 1, and February paid in March will be pay period 12.
For irregular payments applicable for February paid in March to the previous tax year the use Correction Run relevant for February and enter payments as correction in master data in relevant for February date.
- Suppose employee Ravi Kumar gets a Performance bonus of INR 150,000 on March 9, 2010. For accoutring in 2009 – 2010 tax year, you must make the entry in Additional Payments (0015) infotype for February 2010, and run correction payroll for February 2010. If Performance bonus to be accounted to 2010- 2011 tax year, then you must make an entry in Off cycle Payments (0267) infotype for March 9, 2010. Then you must execute Type A Off cycle payroll on March 9, 2010.
Perquisites for Tax
If you have activate AFY, all the perquisites (Housing, Conveyance, Company loan with less interest rate) will be projected based on March.
- Employee Ravi Kumar is eligible for conveyance allowance of INR 800 from March 2009 (paid in April 2009). In this case the exemption for Financial Year 2009 — 2010 is projected for the next 12 periods (INR 800 X 12), which is till February 2010 (paid in March 2010).
- If the employee shifts to a rented accommodation from the COA in July, which is period 5 of AFY, his perquisite for COA is projected only till June, which is period 4 of AFY.
Tax Exemption and Reimbursements
If you have activated AFY, the system considers March (paid in April) as period 1 and February (paid in March) as period 12. Anything paid over and above specified limit configured, between period 1 and 12 will be not being tax exempted for that Financial Year.
- If Employer is paying LTA on regular monthly basis to employee and regular LTA tax projection is on, for this the amount paid for March’2009 in Aprill’2009 will be projected for last 12 months.
Data Maintenance for legislative financial year
Although the AFY is enabled in the system, the system will set the following infotype records’ begin date for the current legislative Financial Year will be set as April 1:
- Income from other sources (0584)
- Section 80 (0585)
- Section 80c (0586)
- Once customers go live on the AFY, customers cannot move to the April – March Financial Year and vice versa.
- Customers cannot go-live on AFY in the middle of the tax year
Check SAP notes below-
1551945 Enhancement pack 5 functionalites availabile on Enh. pack
41629322 Availability of EhP 6 and EhP 5 functionalities on EhP 4