Tax Slab

2.5.7 Tax Slab

You can define the tax that you would like to apply to a contract, in terms of a tier or a slab structure.

Through this screen, first specify if the Basis Amount (on which tax is calculated) should be taken as a slab or a tier. Indicate Cumulative (by checking the box), if the Basis Amount structure is a Tier. Leave it blank if the Basis Amount structure is a Slab.

Table 2-9 Tax Slab - Field Description

Field	Description
Basis Amount To	You should specify the upper limit of the slab or tier to which a particular rate or amount should be applied as tax.
Flat Amount and Rate	If the tax is in the form of a flat amount, you should specify the actual amount. This amount will be applied on the corresponding Basis Amount To, depending on whether you have specified the application basis as a slab or a tier. If the tax rule computes tax on the basis of a rate, you have to specify the actual (rate) value. The rule uses the rate, entered against each slab or tier, to calculate tax for contracts on which the rule is applied.
Floor Amount	The floor amount should be specified only if the Amount Basis (Cumulative) is a tier. This will be the upper limit of the previous tier. By default, the amount specified as the Basis Amount To for the previous tier limit will be displayed. This need not be specified for the first limit in the tier. This amount is used to calculate the tax, along with the Floor Charge.
Floor Charge	The Floor Charge is applicable only if the Amount Basis is a tier. This is the tax amount to be considered for the previous tier limit. This amount is used along with the Floor Amount that you specify to arrive at the tax. The floor charge need not be specified for the first limit in the tier. This amount may not always be the same as the amount calculated, using the Basis Amount To and the Rate for the previous slab. However, if not specified, the Floor charge is calculated based on the rate for the previous tier and the Floor amount for the current tier. An example for the calculation of tax based on a tier structure. Tax is applied on the deal amount of a deal based on the following structure: > 0 <= 10,000 - 0.05% > 10,000 <= 20,000 - 0.06% > 20,000 - 0.08%

The following will be the specifications in the ‘Trade Finance Tax Rule Detailed Maintenance’ screen:

Basis Amount	Rate (%)	Floor Amount	Floor Charge
10,000 (upper limit of the first tier)	0.05	0	0
20,000	0.06	10,000 (upper limit of the first tier)	X (tax amount that will be considered for the first tier)
999999999 (a big amount since there is no upper limit for the third slab).	0.08	20,000 (upper limit of the second tier).	Y (tax amount that will be considered for the earlier slabs).

When this tax rule is applied on a deal, tax will be calculated, depending on the component amount (example, brokerage paid), as follows:

If the component amount is USD 5,000, it falls in the first tier. The tax amount will be calculated in the following manner:

Amount = USD 5,000

Tax 0.05% of USD 5,000 = USD 2.5

If the component amount is USD 15,000, it falls in the second tier. The tax will be calculated in the following manner:

Amount = USD 15,000

Floor Charge (X) = 5.0

Amount to be taxed at 0.06% = USD 5,000 (Component Amount - the floor amount of the second tier)

Tax = USD 3 + 5 = USD 8

If the Component Amount is USD 30,000, it falls in the third slab. The tax amount will be calculated in the following manner:

Component Amount = USD 30,000

Floor Charge (Y) = 11.0

Amount to be taxed at 0.08% = USD 10,000 (Component Amount - the floor amount for the second tier)

Tax Amount = USD 8 + 11 = USD 19

Parent topic: Tax Rules