TAX-1: Sales Tax Setups and its working in Microsoft Dynamics NAV

Sales tax setups in NAV is simple to understand:

There are basically following setups to start sales tax working:

Lets discuss the setups one by one:

1. TIN Numbers: Tin numbers is the list of all tin numbers of your own different locations situated in different states. 

2. Form Codes: Forms are of two types: Tax Forms and Road Permits (Transit Documents). The tax forms are formC, ST31, ST32, all those documents which are being used by sales tax department for sales or interstate sale purposes. The transit documents are those documents which are necessary while movement of goods within india from one state to another state, Here in this table, we would maintain all the form codes which we will going to use in our sales and purchase transactions.

Note: In case of Cform just mark the cform boolean true in the table and same as in road permits, all road permits will be mark true in the "transit documents" check mark field in the table:

3. Schedules: Not so important while creating setups, but still for better reporting it is recommended to have schedules in place. These are basically schedules of sales tax act in which our goods would fall. This is quite important when you are selling the different items falling in various different schedules.

4. States: Here you would give all states falling in india in which you are working. This is important to have all states here but the accounts and all other setups in this tables are necessary if your company's locations are located in those states otherwise only state code and description is enough. The other fields are necessary if you are selling from that state. So, lets discuss the fields one by one:

1. Code: This would be code of the state which has limit of 10 characters. So, give a code of your state like DL for delhi, MH for maharastra.

2. Description : full name of the state

3. State code for eTDS/ eTCS: in nav you can create the E-Tds returns for which the state code as per norms of the income tax is necessary. The system would pick the state code on that return from here so you would have to give the state code for income tax norms here if you are using eTDS from NAV.

4. State code for TIN: In India, the tin number starts with 2 characters which represents the state as per the law. So whenever in NAV you are creating a customer master and filling its TIN number, if the tin number starting 2 characters doesnt match with the the customer's state's TIN number state code in this table, it would not be allowed to user. same as in vendor master.

5. Tax Account (Sales): This is VAT Output account. The state's output tax would hit this account while posting an entry of sales invoice

6. CST Acount (Sales): This is the state's CST account which would be used while sales entry. 

7. Tax Account (Purchase): This is the state's VAT input tax account which would be used while posting a local purchase transaction of that state.

8. VAT Deferred Account:This account would be used when the Fixed assets deferment is used. The fixed asset or capital assets VAT input can be deferred in future years as per the state wise tax laws. The deferred tax amount would be posted in this account which would be used in future years while settlement of the tax in subsequent years through system,

9. VAT Payable account: When you would use the settlement of the VAT in NAV after end of the year, the system calculate the total VAT input and Output, It would transfer the Input and output entries to calculate Net amount payable/ Recoverable.

10. Vat Refund account No.:  In settlement if some amount is recoverable and you have filled the refund amount instead of carry it forward to future quater/ period, this account would be used by system to transfer from recoverable/payable account to refund account.

11. Excess Cr. Carry forward Account:  In case of user wants to carry forward the recoverable amount to future periods, system transfer the amount shown recoverable in payable account in to this account. 

12. Branch transfer retention %:  This account would be used when any item purchased locally on which VAT input account has been debited and the same item has been transferred to any other state, the system would calculate the percentage (given in this field) of input tax on that stock which is being transferred and reverse the input tax on that transaction.

13. Tax Period:  Tax period is the period/ duration of return to be filled. Like in case of delhi the return duration is 3 months, so we would give 3M in this field.

14. Deferment Period : The deferment period is the period in which the capital assets input VAT is deferred, like in delhi if it is 3years, then put 3Y here.

Now, you would have to give the form codes applicable to each state. This is mandatory ie if you have not mentioned the state wise form codes, system would not show the forms in the list of forms while creating a purchase order/ sales order. In navigate, you would find a button of 'Forms'

After clicking the form, system would open the page to add forms applicable to the state you have selected before clicking on forms. 

5. Tax Groups: These are group codes which are connected with the items. The group of items like software, hardwares, Etc. These codes would be available to pick while creating an item master. The item master would have a field called "Tax Group code" where you would have to choose on of the code which would create in this table.

6. Tax Jurisdictions: Each tax area is a grouping of sales tax jurisdictions based on a particular geographic location. Each state would have 2 tax jurisdictions, one for vat and one for CST. Like this below table :

Forms not applicable would be selected if no state tax forms are needed. In this case the forms are not applicable if the check mark is marked true.

7. Tax Details: This is main setup in which the tax percentages would be fixed, This would be fixed as per the dates. As and when there is any amendment, you dont need to modify the tax percentage instead you would create a new line with the new effective date. 

a. Tax Jurisdiction: Here select the tax jurisdiction we have created in table

b. Tax Group code: This is the item group as per the items in which we trade

c. Effective date: the date from which the tax percentage is applicable. From this date in the said jurisdiction and for the said items group this percentage would be applicable. So, effective date is important to undertsand

d. Form code: If the sale/ purchase is 'C form' the tax rates change. So, a separate line for the jurisdiction of CST and tax group with the Cform need to be create to specify the c form percentage applicable. If you dont create line here for cForm, system would not calculate the tax in sales / purchases in which you have selected Cform.