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Employer is advised to quote Total Taxable Income (Column 346) in Annexure II without rounding-off and TDS should be deducted and reported accordingly i.e. without rounding-off of TDS also.If an assessee is employed by more than one employer during the year, each of the employers shall issue Part A of the certificate in Form No. 16 pertaining to the period for which such assessee was employed with each of the employers and Part B may be issued by each of the employers or the last employer at the option of the assessee.
Tax Circular no 17/2014 dated 10 December 2014 has been released by CBDT with clarity on rounding of taxable income and income tax.
"Employer is advised to quote Total Taxable Income in Annexure II without rounding-off and TDS should be deducted and reported accordingly i.e. without rounding-off of TDS also" - page 9.
Example:
Total Taxable income
Total Taxable income (Rounded off)
TDS to be deducted (including CESS)
TDS deducted/reported after rounding-off of income (inc.cess)
Short deduction
1350094
1350090
236929.05
236927.80
Rs.1.25
In current SAP system, the tax rounding is provided under the constant TAXRO with only two values, '0' and '1'.
You can refer to Note : 2094637 - HINCALC0: Annual Income Tax Rounding
Wage types
Taxro = '0'
Taxro = '1'
/434 - Taxable income
Rounded to nearest INR.'10'
Rounded to nearest INR.'10'
/450 - Tax payable and surcharge
Rounded to nearest INR.'1'
Rounded to nearest INR.'10'
This note contains changes related to rounding-off of income taxable income and tax components.
Other Terms
Income Tax Rounding, HINCALC0, INTAX, PCTAXIN0, /434, /450, TAXRO .
Reason and Prerequisites
Legal change
Versions:
Upto Version 5: Pilot release.
Version 6: Released for Customer.
Version 7: Further changes to rounding behvior of Total cess in case if TAXRO value is set to '2' or '3'.
Version 8: Note text revised.
Solution
The Legal change related to rounding-off is delivered through this note.
To get the changes, apply the HR Support Package(s) indicated for your release in the 'Reference to Support Packages' section of this Note.
Alternatively, apply the correction instructions attached with the note.
Note:
Before implementing this note you must apply the Note 2094637 and the attached manual instructions for creating the constant TAXRO, hence there is no manual instruction for the current note.
The provisions of rounding of taxable income and income tax components are provided under an existing constant 'TAXRO' in the table V_T511K with values '0','1','2' and '3'.
The behavior for value '0', '1' was introduced in the Note 2094637. As part of the current note '2' & '3' is supported from Year 01.04.2014 onwards.
The TAXRO will be created for FY 2014-15 i.e. from 01.04.2014 till 31.12.9999.
The below table explains the combination of values for the constant TAXRO and the rounding behavior of the tax components.
Wage Type
TAXRO = '0'
TAXRO = '1'
TAXRO = '2'
TAXRO = '3'
/434 - Taxable income
Rounded to INR.'10'
Rounded to INR.'10'
Upper rounded to INR.'1' in case last digit of /434 is less than '5'
Rounded to INR.'10' in case last digit of /434 is equal to '5' or more.
Not rounded
/446 - Tax payable
Not rounded
Not rounded
Not rounded
Not rounded
/447 - Sec and Higher Educ cess
Rounded to INR.'1'
Rounded to INR.'1'
Not rounded
Not rounded
/448 - Surcharge payable
Rounded to INR.'1'
Rounded to INR.'1'
Not rounded
Not rounded
/449 - Education cess
Rounded to INR.'1'
Rounded to INR.'1'
Not rounded
Not rounded
/450 - Tax payable and surcharge
Rounded to INR.'1'
Rounded to INR.'10'
Upper rounded to INR.'1'
Not rounded
/460 - Income tax
Rounded to INR.'1'
Rounded to INR.'1'
Rounded to INR.'1'
Rounded to INR.'1'.
Not rounded in last period (projection factor - 0)
SAP advises customers to maintain the value of the constant TAXRO as '2'. Under this option the Monthly tax wage type /460 will be always rounded.This will also avoid any short deduction.
Please note that you need to consult with your legal and can accordingly set the value of the constant.
Note: In case if the value of the constant 'TAXRO' is set to value '2', the following rounding behavior applies for the wage type /434 (Taxable Income).
E.g: a. If the value of /434 = 456344.9, then the amount will be upper rounded to INR.'1'. Then the value of wage type /434 = 456345.00.
b. If the value of /434 = 456345.10, then the amount will be rounded to nearest INR.'10'. Then the value of wage type /434 = 456350.00.
The value of the constant cannot be changed retrospectively across Financial years. In case of cross financial year retro payroll run, because of which the system will bring forward inconsistent tax differences.
You can not have multiple values for a Financial year . Following entry is not correct for TAXRO
01.04.2014 - 31.12.2014 --> TAXRO = '2'
01.01.2015 - 31.12.9999 --> TAXRO = '3'
This entry is not supported. For the year 01.04.2014 - 31.03.2015 the value of TAXRO should be either '2' or '3' .
It is advisable not to alter the value of constant once you have set it and ran a payroll.
