9/4/2019 Income Tax Calculation (SAP Library - Payroll India (PY-IN))

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 Income Tax Calculation 

Purpose
This process computes tax on the income received by an employee, for a financial year.

Prerequisites
The master data records for the employee must exist.

Process Flow
India Income Tax computations payroll function (INTAX) processes tax on the income earned
by the employee.
1. Gross Salary wage type (/416) = Ann Reg Income wage type (/410) + Ann Irr Income
wage type (/411) + Annual Perk wage type (/413) + Prev Gross salary wage type (/4V1) +
Val of perk u/s 17(2) wage type (/4VJ) + Profts wrt sal u/s 17(3) wage type (/4VK) -
Exm.under pro.to sec17(2) wage type (/414).
2. Balance wage type (/418) = Gross Salary wage type (/416) - Exemption U/S 10 wage
type (/130).
3. Incm under Hd Salarywage type (/426) = Balance wage type (/418) - Aggrg Deduction
wage type (/424).
4. Gross Tot Incomewage type (/430) = Incm under Hd Salary wage type (/426) + Any
other Income wage type (/131).
5. Total Income wage type (/434) = Gross Tot Income wage type (/430) - Agg of Chapter VI
wage type (/432).
Total Income wage type (/434) is rounded off to the nearest multiple of Rs.10.
6. Tax on total Incomewage type (/436) = Tax calculated on Total Income wage type (/434).
Total Income wage type (/434) comprises of the following components, which are
taxed at different tax rates:
i. Long Term Capital Gains (Normal Rate) = Lng trm cap gns normal wage
type (/3O3). This is taxed at the rate stored in the Long capital gain normal
rate constant (LCNRT) of table view Payroll Constants (V_T511K).
ii. Long Term Capital Gains (Special Rate) = Lng trm cap gns special wage
type (/3OD). This is taxed at the rate stored in the Long capital gain special
rate constant (LCSRT) of table view Payroll Constants (V_T511K).
iii. Short Term Capital Gains (Listed Securities) = Short Gains on Listed Sec
wage type (/3OS). This is taxed at the rate stored in the ST Cap. Gain rate

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(Listed Sec) constant (SCGRT) of table view Payroll Constants (V_T511K).

In case the annual income of an employee falls in the non-taxable income slab,
and the employee has any of the above capital gains income, the taxable
amount of the capital gains is reduced by the amount of non-taxable income
slab upper limit. Normal income and remaining amount of the capital gains is
taxed. If there is more than one capital gains income, then the one with the
highest tax rate is given priority for this benefit.
iv. Other Income = Income from other sources wage type (/3O7). This is
taxed at the rate stored in the Other Income - rate constant (OTHRT) of table
view Payroll Constants (V_T511K).
v. Normal Income = Total Income wage type (/434) - (Lng trm cap gns
normal wage type (/3O3) + Lng trm cap gns special wage type (/3OD) +
Income from other sources wage type (/3O7)). This is taxed at the rate
configured in table view Taxation Slabs (V_T7INT3).
7. Tax payable wage type(/446) = Tax on total Income wage type (/436) - Agg of Chapter
VIII wage type (/444).
8. Surcharge payablewage type (/448) = Surcharge calculated on Tax payable wage type
(/446).
9. Education Cess wage type (/449) = 2% (Tax payable wage type (/446) + Surcharge
payable wage type (/448))
10. Tax payable and surcharge wage type (/450) = Tax payable wage type (/446) +
Surcharge payable wage type (/448) + Education Cess wage type (/449).
Tax payable and surcharge wage type (/450) is rounded off to the nearest rupee.
11. Tax deducted so far wage type (/456) = Prev Tax Deducted wage type (/4V5) + TDS
other than salaries wage type (/4OC) + Income Tax wage type (/460) in the Cumulative
Results Table.
12. Net tax payable wage type (/458) = Tax payable and surcharge wage type (/450) - Sec
89 relief wage type (/451) - Tax deducted so far wage type (/456).
13. Income Tax wage type (/460) = Net tax payable wage type (/458) divided by (Projection
Factor wage type (/401) +1).
Rounding off monthly tax amounts rule (INTR) does the rounding off of the Income Tax
wage type (/460) to the nearest rupee in all payroll periods, except for the last payroll
period.
This payroll function calculates the monthly values for the following components:
· Tax payable
· Education cess
· Surcharge
· Monthly taxable income

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Print Program for Form 24 report (HINCF240) reads these monthly values and reports them on
Form 24Q e-file.
The monthly values are calculated as follows:
● Monthly Tax Payablewage type (/4MT)
a. Tax Payable Ded Till Date wage type (/4TT) = Prev Emp Tax Payable wage type
(/4PT) + value of Monthly Tax Payable wage type (/4MT) deducted till date.
b. Monthly Tax Payablewage type (/4MT) = (Tax Payable wage type (/446) - Tax
Payable Ded Till Date wage type (/4TT) - tax payable part of Section 89 relief wage
type (/451)) / Projection Factor.
● Monthly Education Cesswage type (/4ME)
a. Edu Cess Ded Till Datewage type (/4TE) = Prev Employment Edu Cess wage
type (/4PE) + value of Monthly Education Cess wage type (/4ME) deducted till date.
b. Monthly Education Cess wage type (/4ME) = (Education Cess wage type (/449) -
Edu Cess Ded Till Date wage type (/4TE) - Tax payable part of Section 89
reliefwage type (/451)) / Projection Factor.
● Monthly Surcharge wage type (/4MS)
a. Surcharge Ded Till Date wage type (/4TS) = Prev Employment Surcharge wage
type (/4PS) + value of Monthly Surcharge wage type (/4MS) deducted till date.
b. Monthly Surcharge wage type (/4MS) = (Surcharge Payable wage type (/448) -
Surcharge Ded Till Date wage type (/4TS) - Tax payable part of Section 89
reliefwage type (/451)) / Projection Factor.
● Monthly Taxable Income wage type (/4MI)
The system provides the closest approximation to the monthly gross income. Assuming
that the Gross Total Income (GTI) is represented as:
¡ Gross Total Income wage type (/434) for April = G1 * 12
¡ Gross Total Income wage type (/434) for May = G1 + G2 * 11
¡ Gross Total Income wage type (/434) for June = G1 + G2 + G3 * 10
Similarly, Gn is the Monthly Gross Income for the nth period.
Now, to calculate the value of G1 (Monthly Gross Total Income for April), the system
divides the Annual Gross Total Income by the projection factor. Once G1 is available, the
system can calculate the next month’s GTI wage type using the following formula:
○ G2 = ((G1 * Projection factor of previous period) + (GTI of current period - carried
forward amount in the In Period due to retroactive run) - GTI of previous period) /
Projection factor of current period.
Here, before computation, the GTI for current period and previous periods are reduced
by the irregular incomes earned during that period because the irregular income is a one
time payment. In addition, as in the equation, the carried forward amount in the current
period is not considered for the computation. This amount is also a one-time payment
and is added separately to the computed value.

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○ Monthly Taxable Income wage type (/4MI) = G2 (as computed above) + Mon Irr
Income wage type (/125) + Carried forward amount (BF Basic Arrears wage type
(/ZBS) + irregular income carried forward, if any)

Result
The system calculates the income tax liability of the employee for the month.

Example
A male employee in your organization has the following pay structure for the financial year
2005 - 2006:
● Monthly Regular Income - The employee receives the following allowances that are
cumulated in the Mon Reg Income wage type (/124).
¡ Basic Pay = Rs.9500.00
¡ Dearness Allowance = Rs.4200.00
¡ House Rent Allowance = Rs.3000.00
¡ Conveyance = Rs.1000.00
· Irregular Income - The employee receives the following allowance in the month of June
2005 that gets cumulated in the Mon Irr Income wage type (/125).
¡ Annual Bonus = Rs.15400.00
· The employee pays a house rent of Rs.2500.00 per month.
· The employee has invested Rs.20000.00 in National Savings Scheme (Section 88).
You are running the payroll for the month of June 2005. The taxable salary is calculated as
follows:
· Annual Regular Income = Ann Reg Income wage type (/410)
= Rs.35400.00 (Value of Reg Income wage type (/124) in the Cumulative Results Table)
+ Rs.17700.00 (Value of Reg Income wage type (/124) in the Results Table)
+ Rs.159300.00 (Value of Mon Reg Income wage type (/124) in the Results Table
multiplied by the value of Projection Factor wage type (/401))
= Rs.212400.00
· Annual Irregular Income = Ann Irr Income wage type (/411)
= Rs.15400.00 - Annual Bonus (Value of Mon Irr Income wage type (/125) in the
Cumulative Results Table)
+ 0.00 (Value of Mon Irr Income wage type (/125) in the Results Table)
= Rs.15400.00
· Gross Salary wage type (/416)
= Rs.212400.00 + Rs.15400.00
= Rs.227800.00
· Exemption U/S 10wage type (/130)
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= Conveyance Annual Exempt wage type (/4E3) + HRA Annual Exemption wage type
(/4E4)
= Rs.800.00 multiplied by 12 + minimum of Rs.(65760.00,36000.00,13560.00)
= Rs.9600.00 + Rs.13560.00
= Rs.23160.00
· Balance wage type (/418)
= Rs.227800.00 - Rs.23160.00
= Rs.204640.00
· Deductions
¡ The professional tax liability of the employee is Rs.200.00 per month.
Empmnt tax (Prof Tax)wage type (/422) = Rs.2400.00
· Incm under Hd Salarywage type (/426)
= Rs.204640.00 - Rs.2400.00
= Rs.202240.00
· As the employee does not have any income from other sources, Any other Income wage
type (/131) = 00.00.
Gross Tot Incomewage type (/430) = Incm under Hd Salary wage type (/426)
= Rs.177240.00
· The employee has invested Rs.20000 in a scheme under Section 80 deductions.
· Monthly Provident Fund deduction = 12% of (Basic salary + Dearness Allowance)
= Rs.1644.00
Ee Ann PF contributionwage type (/3F6) = Rs.19728.00
● Agg of Chapter VIwage type (/432) = Rs.20000 + Rs.19728 = Rs.39728
● Total Income wage type (/434) = Gross Tot Income wage type (/430) - Agg of Chapter VI
wage type (/432)
= Rs.202240 - Rs.39728 = Rs.162512
Since, the year of assessment is 2005 – 2006,
· Tax on total Incomewage type (/436) = Tax calculated on Total Income wage type (/434)
= Rs.7502.40
· Tax payable wage type(/446) = Rs.7502.40
Surcharge payablewage type (/448) = 0
· Education Cess wage type (/449) = 2% of (Rs.7502.40)
= Rs.150.048
= Rs.150.00 (rounded off to the nearest rupee)
· Tax payable and surcharge wage type (/450) = Rs.7502.40 + Rs.0.00 + Rs.150.00
= Rs.7652.40
= Rs.7652.00 (rounded off to the nearest rupee)
· Tax deducted so far wage type (/456) = Rs.811.00 (Tax paid by the employee in the
previous periods of the financial year)
· Net tax payable wage type (/458) = Rs.7652.00 - Rs.811.00
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= Rs.6841.00
· Projection Factor wage type (/401) = 9 (July 2005 to March 2006)
· Income Tax wage type (/460) = Rs.6841.00 divided by (9+1)
= Rs.684.10
= Rs.684.00 (rounded off to the nearest rupee)
The employee has to pay a tax of Rs.684.00 for the month of June 2005.
See also:
Income Tax

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