‘12912020 Reverse Charge in Taxation | SAP Blogs RSS feed Like Aska Question Write a Blog Post Rudra Prasanna Mohapatra October 20, 2017 2 minute read Reverse Charge in Taxation GLikes 16138 Views 2 Comments Reverse Charge Reverse charge is a scenario in Taxation, where, the tax paying entity creates a tax liability on it self. One of the examples of this is India GST, where reverse charge needs to be applicable under specific scenarios, such as Purchase from Unregistered Vendors, Import of services and Purchase of specific Goods and Services. ‘To understand it better, let us take the an example. An organization purchases goods from a supplier. That supplier is not eligible/registered to pay taxes to government. The rule in that particular tax regime tells, that, in such case, the buyer needs to create a tax liability on itself and submit the tax amount to government. This concept is called reverse charge. Let's talk about it from an accounting point of view. Purchase without Reverse Charge (Regular Purchase) In case of anormal purchase, the accounting entry will be as it below. Vendor Cr 1100 Expenses Dr 900 Input Tax Dr 100 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. hitps:ologs.sap.com/2017/10/20Ireverse-charge-n-taxation! 18‘12912020 Reverse Charge in Taxation | SAP Blogs Follow RSS feed Tax Vendor Deposits the yrrrerrey cs ‘Tax Component) Component) Purchase with Reverse Charge In case of a reverse charge, the accounting entry will be as below. Vendor Cr 1000 Expenses Dr 1000 Input Tax Dr 100 Output Tax Cr 100 Here the Output tax line indicated that the organization is liable to pay the tax amount to Government directly. hitps:ologs.sap.com/2017/10/20ireverse-charge-imtaxation!‘12912020 Reverse Charge in Taxation | SAP Blogs Follow RSS feed i Like Invoice(With Out Tax Component) Buyer Deposits the Tax ae indling Reverse Charge in SAP Through Reverse Charge Tax Code Set Un i Condition Type Set up in Tax Procedure. Condition Type for Both components of the reverse charge needs to be set up in the tax procedure. In the below snapshot, ZP2 and ZP3 are these condition types. Es (FRCS |e. text ee aoe = Sp ot pe a ss foe => AR... Tex3. 17) (Oj/O/0 ps, eees ‘> A 8 ar 3 Input Tae 10) 0/00 fee. i Define Tax code in FTXP Teode hitps:ologs.sap.com/2017/10/20ireverse-charge-imtaxation! 38‘12912020 Reverse Charge in Taxation | SAP Blogs Properties Tax accounts Deactivate line Country Key Bo Tax code [zR| ~ cn ees” reverse charge---* rate Procedure (aa: Tax type Py] Input tax _Percentage rates: Tex Type Acct Key Tax Percent, Rate Level FromLvi Cond. Type [Base Amount Y_ [00] fo] BASE Calculated Call G/L. L_] 105} fo | Distributed to G/L _] io6) fo _| Subtotal |_| fzo7] fo] Input Tax [NAV] [120] [100] ‘MWS Sales Tax ivws 140) [100] ‘MWAS econ eave Lat WaT Teo) [i00] Gat GST\- |vAU 170) (100) 268T AJR VAT Tax 1 [MW 180) [107] @RL [AIR VAT Tax 2 [Mw2) [81] [107] ZR. | AJR VAT Tax 3 |uw3 [ 182] [107] ZR3 T zs [var] fi90) [200] [ze2 | [wa 100.000 Z00| [iso] ZB3 iit, Define GL accounts for these two components. Chart of Accounts Transaction a _Account assignment Tax code ZR hitps:ologs.sap.com/2017/10/20Ireverse-charge-n-taxation! 48‘12912020 Reverse Charge in Taxation | SAP Blogs Chart of Accounts = Transaction VA2 Then using this Tax code creates a document with reverse charge. Vendor Cr 1000 Expenses Dr 1000 Input Tax Dr 100 Output Tax Cr 100 Please note that, for countries with condition based tax Procedure (India/Brazil) this will require a separate set up. That can be discussed as another section. The above explanation is applicable for countries with a formula based tax procedure Comments and suggestions are welcome. hitps:ologs.sap.com/2017/10/20Ireverse-charge-n-taxation! 58‘12912020 Reverse Charge in Taxation | SAP Blogs Alert Medacat Follow RSS feed Like Assigned tags FINPosting and Taxes | reverse charge | Related Blog Posts Plant abroad in SAP within European Union and outside EU. By Anand Agrawal , May 02, 2017 Purchase to Sales Process ~ SAP Finance in one Go By Shorab Kumar Dilip Sharma , May 12, 2020 SAP Central Finance 2020 (Preview) By Nitin Gupta, Oct 02, 2020 Related Questions VAT Reverse Charge By Cheryl Devine , Jun 09, 2020 Reverse charge VAT for services within EU By Former Member . Mar 17, 2017 Reverse Charge Tax code posting wrong signs in Stock Transport Orders By Srikanth Dasari . Aug 28, 2019 2 Comments You must be Logged on to comment or reply to a post. g Atul Rajmane March 4, 2018 at 1:03 pm Hi. Very Nice post. Ihave below comments, The Screenshot under comment Condition Type Set up in Tax Procedure ZP3 calculated from step 190 and ZP2 from step 100 (assuming Step 100 is base amount). As per me its both ZP3 and ZP2 should be calculated from step 100 to have null effect if | am using % as tax percentage rate. hitps:ologs.sap.com/2017/10/20Ireverse-charge-n-taxation! 28‘12912020 Reverse Charge in Taxation | SAP Blogs eg. Fol RSS feed Like Vendor Cr 2000 Expenses Dr 2000 Input Tax Dr 100 (5% base amount i.e. 2000) Output Tax Cr 100 (5% base amount ie. 2000) Let me know if | am correct. Regards Atul Raimane 2 Narasimhulu Konnipati June 29, 2019 at 3:11 pm It works in both the ways. 1. You can take the Tax Base amount directly from Step 100 and make the Tax percentage in Positive 2. You can take the Tax Base amount from Step 190 and make the Tax Percentage -100 (Negative) Example 1: Goods/Service DR 1000 Supplier/Vendor cR 1000 Input Tax DR 200 (20% on Basic 1000) Output Tax cR 200 (20% on Basic 1000) Example 2: Goods/Service DR 1000 Supplier/Vendor cR 1000 hitps:ologs.sap.com/2017/10/20Ireverse-charge-n-taxation! 718‘12912020 Reverse Charge in Taxation | SAP Blogs Input Tr 0. RSS feed a Output Tax 00 (-100% on Tax Amount from Step #190. 200*-100/100) Hope this clarifies Thanks, Nsk Find us on Privacy Terms of Use Legal Disclosure Copyright Trademark Cookie Preferences Newsletter Support hitps:ologs.sap.com/2017/10/20Ireverse-charge-n-taxation! 38