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Third Party Deductions –Chapter VI-A Exemptions U/S 80 and U/S 88

Dear Gurus,

This blog post illustrates the phenomenon of mapping the Third Party Deductions as the exemptions under the Section 80 and 88.

The Investments and Contributions in 0585 and 0586 infotypes are termed as the Exemptions under the Section 80 and 88.The same grounds the statutory system provides for deductions from taxable income and rebates that are subtracted from the income tax otherwise payable by an employee. Sometimes employer facilitates deductions from employee’s salary once in a year or any other frequency suggested by employee to contribute to the relevant Funds/Trusts etc. so that employee can avail deductions under section 80 and / or rebate under section 88.

We can assign wage types to be deducted for various heads under section 80 and section 88.The various types of the deductions under the Sec 80 and 88 are,

  • Medical Insurance Premium (Non-Senior Ctz)
  • Medical Insurance Premium (Non-Senior Ctz)
  • Medical Insurance Premium (Senior Citizen)
  • Permanent Physical Disability
  • Payment towards Life Insurance Policy

Step1: Configure Wagetypes for Section 80

Contributions or investments made under Section 80 are considered as deductions from Gross Total Income (GTI) as per the limits specified by Central Government. By assigning a wage type,  ensure that the annual value of the wage type along with the entries made in Section 80 Deductions, Infotype (0585) becomes eligible for deduction from GTI for the specified sub-section / division combination.More than one wage type can be associated with same sub-section / division combination using the sequence field.Copy the Custom Wagetypes from the Model Wage Types as follows,3010     Medical Insurance Premium (NSC)          M80D3011     Medical Insurance Premium (SC)             M80D3012     Permanent Physical Disability                  M80U

SPRO->IMG->Payroll->Payroll India->Tax->Third Party Deductions-> Configure Wage types for Section 80

Table: V_T7INIC

Assign the custom wage types replacing the Model Wage Types in the below table.V_T7INIC.jpg

Step2:Configure Wagetypes for Section 88

The contributions or investments made under Section 88 are considered as rebates from the total tax payable by the employee. By assigning a wage type,  ensure that the annual value of the wage type along with the entries made in Section 88 Deductions infotype (0586) becomes eligible for rebate from tax payable otherwise for the specified investment.More than one wage type can be associated with the same investment type by using the sequence number field.

SPRO->IMG->Payroll->Payroll India->Tax->Third Party Deductions-> Configure Wage types for Section 88

Table: V_T7INIAReplace the Model wage type MLIC with 3013 the custom Wage Type3.V_T7INIA.jpgStep3:Define Membership/Deduction TypesIn this step,  determine the different types of deduction that are made through the Membership Fees Infotype (0057). Each deduction type is represented by a subtype in the infotype.Check to see whether the necessary membership/deduction types for the organisation are included and, if necessary, add additional entries and delete the entries that we do not need.Note that each membership/deduction type corresponds to a subtype.Example4444     Housing Loan Principal5555     Payment towards Life Insurance Policy6666     Permanent Physical Disability7777     Medical Insr Premium (Non-Senior Ctz)SPRO->IMG->Payroll->Payroll India->Tax->Third Party Deductions-> Define Membership/Deduction Types

Table: VV_T591A_0057

VV_T591A_0057.jpg

Step4: Check entry permissibility for Membership Fees Infotype (005

In this step, maintain those wage types that we want to pay through the Membership Fees Infotype (0057) for Third Party deductions.Check the entries delivered by SAP. In case we want to allow the entry of a new wage type in the Membership Fees Infotype (0057), proceed as follows:

  1. 1. Select New entries.
  2. 2. Enter the key of the wage type.
  3. 3. Define the validity period.
  4. 4. Determine whether the wage type can be entered once or more than once at any one time (time constraint).
  5. 5. Save the entries.

SPRO->IMG->Payroll->Payroll India->Tax->Third Party Deductions-> Check entry permissibility for Membership Fees Infotype (0057)

Table: V_T512Z

V_T512Z.jpg

Step5: Maintenance Of Master Data

Maintain the 0057 info types and relevant subtypes for the employee.Mentione the amount and the Payee Key details.

Master Data.jpg

Step6:  Payroll Processing

Process the Payroll for the employee.

Payroll.jpg

Step7: Execute the Form 16:

T.Code:PC00_M40_F16

The Third Party Deductions mentioned through the 0057 infotype are reflected under the Chapter VI-A Exemptions under Section 80C,80D(01) and 80U(01).

Form-16.jpg

Form-161.jpg

Bibliography:

1)http://taxworry.com/easy-chart-of-deductions-80c-80u-80ddb-individual/

2)http://help.sap.com/saphelp_erp2005/helpdata/en/72/99f0032fc9463ea3df7af9fd1c57b7/content.htm

3)http://help.sap.com/saphelp_erp2005/helpdata/en/7e/5e061d4a1611d1894c0000e829fbbd/content.htm

Sincerely

Govardhan Reddy

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1 Comment

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  1. Former Member

    Hi Goverdhan,

    Thanks for the valuable information that you have provided here…

    It has helped to solve one of the Requirement that was related to the 80C LIC.

    While doing the configuration and as per the observation that i found in your Post is that, The Payment Towards Life Insurance Rs 4002 in Payslip and Rs 44022 in Form 16, it has calculated for only 11 months and not for 12 months.

    My requirement is to Exempt the Rs 4002 * 12 months.

    Please explain logic behind this as i am not able to understand it properly.

    Waiting for your valuable reply.

    Thanks and Best Regards,

    Vikram A V

    (0) 

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