Calculating Tax deductions for employees every month is a time-consuming activity for most businesses, especially for large enterprises. If set up properly, OneOfficeERP simplifies most of the tax-related calculations by automatically calculating tax deductions while generating Salary Slips. Here's how you can configure OneOfficeERP to ease your payroll processing -
In many countries, egulations allow exempting a part (or all) of some type of spendings by individuals from being added to their annual taxable income. Examples of such spendings could be contributions to charitable institutions, the amount spent on the education of children, specific investments, etc. To avail the exemption from their taxable income, individuals are required to submit proof of such spendings.
OneOfficeERP allows you to configure Income Tax Slabs and the tax is calculated based on the projected annual earnings of the employee. For this, employees are required to declare the exemption amount they plan to claim at the start of the financial year so that the payroll deductions for tax will be calculated based on the projected annual earnings minus the exemption. Employees can declare this through Employee Tax Exemption Declaration.
If no declaration is submitted by the employee, the monthly deductions will be calculated without any exemption from the employee's annual earnings. However, if the employee submits a declaration in between the payroll period, the tax exemption will be applied from the next payroll onwards. Any additional tax collected in earlier payrolls will be adjusted in the last payroll or when using Deduct Tax For Unsubmitted Tax Exemption Proof in Payroll Entry or Salary Slip.
Also, at the end of the year employees submit the actual proof of the spendings for filing via Employee Tax Exemption Proof Submission. In the last payroll of the Payroll Period, OneOfficeERP checks for proof submissions of employees, and if not found, tax for the exempted income will be added to the standard deduction component.
Exemptions from taxable salary are usually restricted to spendings on particular categories decided by government or regulatory agencies. OneOfficeERP allows you to configure various categories which are allowed to be exempted.
You can configure Employee Tax Exemption Category by going to:
Human resources > Payroll Setup > Employee Tax Exemption Category > New Employee Tax Exemption Category
Under each category, there could be many heads for which the exemptions are allowed.
You can configure Employee Tax Exemption Sub Category by going to:
Human resources > Payroll Setup > Employee Tax Exemption Sub Category > New Employee Tax Sub Exemption Category
OneOfficeERP simplifies payroll processing by automatically processing payroll in bulk via Payroll Entry.
If you wish to collect tax for benefits before the last payroll, check this option and OneOfficeERP will recalculate the tax and add the tax for all untaxed benefits while generating the Salary Slip.
Note: If required, you can still process payroll for employees individually, by manually creating a new Salary Slip and both these options are made available in the Salary Slip
Income Tax Slab helps you define Tax slabs applicable for the period, making it easier to manage changing laws. You can add multiple tax slabs for the payroll period depending on the tax regulations. Note that you can use fields in Employee document in the Condition field to apply tax slabs based on attributes of employees.
To enable automatic tax deduction based on Tax slabs configured in Income Tax Slab, you have to configure a Salary Component of type Deduction with Variable Based On Taxable Salary option enabled. This checkbox enables auto calculation of Income Tax considering the tax slabs and declaration submitted by an employee. The tax will be calculated annually on the remaining taxable salary and equally divide it in 12 months.
Important Note: If you configure condition and formula for this Deduction component, the condition and formula will be considered for calculating the Salary Component and the Tax Slabs configured in Income Tax Slab will be ignored. However, you can still use Deduct Tax For Unsubmitted Tax Exemption Proof option in Payroll Entry / Salary Slip to deduct taxes based on the Tax Slabs configured in Income Tax Slab, exempting Employee Tax Exemption Proof Submission which will give precedence to the Tax Slab based tax deduction. This is particularly helpful if you need to deduct a fixed amount as a deduction in each payroll rather than OneOfficeERP automatically calculating the deductions based on the projected annual salary of the employee after exemption as declared by the employee via Employee Tax Exemption Declaration. At the end of the fiscal year, you can still use Deduct Tax For Unsubmitted Tax Exemption Proof to deduct the remaining tax liability of the employee for the whole period.