Understanding the Application of Exchange Rate in Calculating Tax
This topic explains the application of exchange rate in calculating Goods and Services Tax (GST), Tax Deduction at Source (TDS), and Tax Collected at Source (TCS).
Goods and Services Tax
The following points indicate how the exchange rate becomes a factor in calculating GST:
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In a GST tax rule, the SuiteApp specifies amounts in the From Amount and To Amount fields in the base currency of a subsidiary.
When a transaction involves a foreign currency, the SuiteApp uses an exchange rate to convert the transaction amount into the subsidiary’s base currency.
After conversion, the tax process calculates GST based on the amount range specified in the GST rule applicable to the transaction.
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The SuiteApp derives the cess rate to calculate GST compensation cess using the following formula.
Cess Rate =Cess Rate Per Unit ÷Exchange Rate
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The SuiteApp specifies the LUT or Bond value in a subsidiary’s base currency. To determine the amount to be added or deducted from LUT or Bond Value, the exchange rate for a transaction is multiplied with its tax amount.
For example, in an invoice, the new LUT or Bond value is determined using the following formula.
New LUT or Bond Value = Old LUT or Bond Value – (GST Amount x Exchange rate)
Tax Deduction at Source
In a TDS tax rule, you must enter the threshold amount in the base currency of a subsidiary.
When a transaction is entered in foreign currency, the SuiteApp uses exchange rate to convert it to the base currency.
After conversion, the SuiteApp determines the tax amount if it crosses the threshold. This tax amount is stored in India Accumulated Tax Buckets.
To display tax amount on transaction, the SuiteApp again converts the amount to foreign currency mentioned in the transaction using the exchange rate.
Tax Collection at Source
In a TCS tax rule, you must enter the threshold amount in the base currency of a subsidiary. When a transaction involves foreign currency, the SuiteApp uses exchange rate to convert the amount into the subsidiary’s base currency.
After conversion, the tax process calculates TCS if the bill amount is greater than the threshold amount set in the rule.
After calculating TCS, the SuiteApp again uses exchange rate to convert and display the tax amount in the foreign currency in the transaction.
For more information about TCS calculation, see TCS Calculation.