Significance of Tax category & posting without tax allowed in GL master?


If transaction is tax relevant, then accounting of tax also needs to be done. Accounting document should incorporate tax accounting (tax calculation & posting) also.

When a tax relevant document is posted, tax code is entered in the document for tax calculation & posting.

 

Example:

Transaction: Purchase goods worth 100 from vendor and tax rate 10%.

Assume V1 is input tax code for 10% input tax.

Then for system to calculate tax, V1 needs to be entered against purchase account.

Prerequisite is purchase account should be ready to accept tax code or purchase account should be tax relevant. A GL account is made tax relevant by using field tax category in GL account master.

If tax category field in GL master of purchase account is left blank then purchase account is not relevant for tax. Hence tax calculation will not happen.

tax-category & posting without tax allowed

 

What to maintain in tax category field in GL master?

As we can see in picture, tax category field can have many values. How to decide what value to maintain in GL master?

Every GL account is created for specific purpose:

Purchase account might be created for accounting of purchase transaction.

Revenue account might be created for accounting of revenue transactions.

From the nature of transaction that will be posted in GL account, you know what nature of tax (input tax or output tax) is going to be involved.

→If you know, purchase account is always going to have input tax only. Then select tax indicator “- only input tax allowed”. If someone uses output tax code then error will popup saying only input tax is allowed for the GL account.

→If revenue GL account is always going to have output tax only, then it makes sense to maintain tax category “+ only output tax allowed”.

→If both input tax & output tax may involve with GL account, then it makes sense to maintain tax category “* all tax types allowed”.

tax-category

 

Posting without tax allowed

Suppose tax category in GL master of purchase account is not blank, it means purchase account is tax relevant account.

Hence whenever you try to post to purchase account, system will ask for tax code. Without entering tax code, document will not get posted.

But what if you want to post to purchase account without having tax involved, then probably your requirement is if tax code is provided then calculate tax and if tax code is not provided then post the document without tax.

Hence you should be able to post to purchase account with or without tax code.

This is achieved by selecting the field posting without tax allowed.

posting-without-tax-allowed