Third Party Deductions –Chapter VI-A Exemptions U/S 80 and U/S 88
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
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.Step3: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
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. Select New entries.
- 2. Enter the key of the wage type.
- 3. Define the validity period.
- 4. Determine whether the wage type can be entered once or more than once at any one time (time constraint).
- 5. Save the entries.
SPRO->IMG->Payroll->Payroll India->Tax->Third Party Deductions-> Check entry permissibility for Membership Fees Infotype (0057)
Step5: Maintenance Of Master Data
Maintain the 0057 info types and relevant subtypes for the employee.Mentione the amount and the Payee Key details.
Step6: Payroll Processing
Process the Payroll for the employee.
Step7: Execute the Form 16:
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).