ERPNext Payroll – Exempted From Income Tax deduction not reducing taxable salary in PAYE calculation

ERPNext Support
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1

Hello Frappe Team,

We are implementing Payroll in ERPNext for a Ghana-based organization and have encountered what appears to be either a configuration gap or a limitation in the payroll tax engine.

ERPNext Version

erpnext/Frape 15.110.0

hrms 15.60.3

Scenario

We have configured the following salary structure:

Earnings

  • Basic Salary (BS) = Base Salary

  • Transportation Allowance (TA) = GHS 540.00

Deductions

  • SSNIT Employee (5.5% of Basic Salary)

  • Welfare Deduction (Fixed GHS 100)

  • PAYE (Variable Based On Taxable Salary)

SSNIT Employee Configuration

The SSNIT Employee salary component is configured as:

  • Type = Deduction

  • Exempted From Income Tax = Enabled

  • Variable Based On Taxable Salary = Disabled

  • Statistical Component = Disabled

The Salary Slip correctly generates the SSNIT deduction amount.

Example:

  • Basic Salary = GHS 35,918.10

  • Transportation Allowance = GHS 540.00

  • SSNIT Employee = GHS 1,975.50

Expected Behaviour

Because SSNIT Employee is marked “Exempted From Income Tax”, we expected ERPNext to reduce taxable income before calculating PAYE.

Expected taxable income:

35,918.10 + 540.00 - 1,975.50 = 34,482.60

Actual Behaviour

The generated Salary Slip shows:

  • Total Earnings = GHS 36,458.10

  • Deductions before tax calculation = GHS 0.00

  • Annual Taxable Amount = GHS 36,458.10

The SSNIT deduction is correctly applied to Net Pay, but it is not being included in “Deductions before tax calculation” and does not reduce taxable income.

As a result, PAYE is calculated on GHS 36,458.10 instead of GHS 34,482.60.

Question

Is the “Exempted From Income Tax” checkbox on a Salary Component expected to reduce taxable income when using Income Tax Slabs?

If not, what is the recommended ERPNext approach for implementing mandatory employee pension deductions (such as Ghana SSNIT employee contributions) that must reduce taxable income before PAYE is calculated?

Are we missing any additional configuration required for the deduction to appear under “Deductions before tax calculation” in the Salary Slip?

Thank you for your guidance.

Employee
Employee1157×641 76 KB

Income tax
Income tax1095×407 41.7 KB

2

Hi @gsarps and welcome to the community

Maybe the docs can help you figure it out: -

Best of luck with your HRMS journey

1 Like
3

Hi @asieftejani

Thank you for the suggestion.

I reviewed the Employee Tax Exemption Declaration documentation, but my use case is slightly different.

I am not trying to apply an employee tax relief or exemption declaration.

I have a Salary Component called “SSNIT Employee” (5.5% employee pension contribution) configured as:

  • Type = Deduction

  • Exempted From Income Tax = Enabled

The deduction is correctly calculated on the Salary Slip, but it does not appear under “Deductions before tax calculation” and does not reduce the Annual Taxable Amount.

My question is:

Is the “Exempted From Income Tax” checkbox on a Salary Component expected to reduce taxable income when using Income Tax Slabs, or is ERPNext designed to only consider Employee Tax Exemption Declarations for taxable income reductions?

Any guidance would be appreciated.

4

Can you try ticking “Variable Based On Taxable Salary” instead.