Procurement with Reverse Charge Mechanism in SAP S4HANA Cloud

This Blog post is subsequent to below FI Blog post on topic Reverse Charge Tax calculation

https://blogs.sap.com?p=387

Here aim is to explain the process of Procurement with RCM – Intra State Scenario (Deductible) in SAP S4HANA Cloud through an example in system

Target Audience

Business Users, Key Users, Consultants

Target Industry

All

Below Roles are used to simulate the example

This Blog refers to Intra State Procurement with RCM, here Plant & Supplier both belongs to Same State (e.g. Gujarat) hence relevant tax code at the time of PO creation should be selected

Supplier Address –

Plant Delivery Address –

Applicable Tax Code

Creation of Purchase Order

Role – PURCHASER

Fiori App – Create Purchase Order – Advance

Lets assume product CP-RM5 is purchased from Non Registered supplier within state

All the required details are entered in PO during creation step. In Invoice Tab at item level, Tax code J2 – CGST (9%) + SGST (9%) (RCM) is selected

At Purchase Order Level, Calculation of taxes appears as below

PO Approval

In our example, we are considering automatic approval of Purchase Order

Delivery of Goods

Role: WAREHOUSE_CLERK

Fiori App – Post Goods Movement

In first delivery of goods, Let’s assume only 50 units are received from the supplier.In goods receipt screen, information corresponding to PO, Receipt Qty, Sloc & other necessary details are entered & document is posted

Account Entries are triggered considering price Indicator & material price from the material master record. Important to note, no GST related posting happens at this stage

Post Supplier Invoice

After posting the receipt of goods, Next step is to post the supplier invoice

Role – AP_ACCOUNTANT

Fiori App – Create Supplier Invoice – Advance

Explanation of Accounting Entries at this step

Purchase without Reverse Charge (Regular Purchase) (Deductible)

In case of a normal purchase, the accounting entry will be

Vendor Cr 5000

Expenses Dr 500

CGST Tax Dr 450

SGST Tax Dr 450

In this case, the buying organization pays the tax amount to the Vendor (in the payment against invoice), who in turn will submit it to the government.

Purchase with Reverse Charge (Deductible)

In case of a reverse charge, the accounting entry will be

Vendor Cr 5000

Expenses Dr 500

CGST Tax Dr 450 (Input)

SGST Tax Dr 450 (Input)

CGST Tax Cr 450 (Output)

SGST Tax Cr 450 (Output)

Procurement with RCM – Inter State Scenario (Deductible)

Applicable Tax Code : J1- IGST 18% – Domestic input GST -RCM

Accounting entries assuming values from above example

Vendor Cr 5000

Expenses Dr 500

IGST Tax Dr 450 (Input)

IGST Tax Cr 450 (Output)

Procurement with RCM – UT Scenario (Deductible)

Applicable Tax Code: J3- CGST 9% +UTGST 9% – Domestic input GST-RCM

Here, SGST condition type will be replaced with UGST tax condition type

Accounting entries assuming values from above example

Vendor Cr 5000

Expenses Dr 500

CGST Tax Dr 450 (Input)

UGST Tax Dr 450 (Input)

CGST Tax Cr 450 (Output)

UGST Tax Cr 450 (Output)

For Non- Deductible Scenario – As per rule, all the tax amount will be loaded to Material inventory