Income tax calculation seems to be incorrect

[mmh]

@tanzy I saw that you had problem in income tax calculation. Would be great to get your feedback in the situation I am facing.

@michelle - Would be great to get your views too.

Thanks!

[Reema_Mehta]

Hi,

You are right that the amount of IT should be the same for all the 12 months if the gross amount is same. Would like to know if you did some changes after the month of April. Like did you put any declarations? Or any other change?

Regards,
Reema

[mmh]

Thanks @Reema_Mehta. No I didn’t make any changes to the earnings/deductions. Its the same salary structure assignment, no declaration, no tax statements etc. I generated payroll entries for 5 months with the same details.

[clarkej]

@mmh

@Reema_Mehta @akurungadam @rmehta - Can I please expect a response for this? This is a blocker for me to adopt ERPNext in my organization?

Please don’t @tag folks - this is a volunteer forum so no one is obligated to respond to meet your needs.

For urgent cases and dedicated support check these options
https://erpnext.org/erpnext-jobs
https://erpnext.org/service-providers

[akurungadam]

@mmh

I expect the income tax deduction to be Rs. 3750 for all the months.

I understand your concern, here’s a bit more detailed explanation from my understanding of how it works.

@akurungadam

ERPNext calculates income tax deduction based on the projected annual salary payable to the employee which is why the income tax deduction per month varies.

This means, ERPNext calculates the Tax liability of the individual on the projected annual income and distributes it for monthly deduction. It is important to note that the tax liability is the tax payable by the individual on the projected annual income minus the tax already deducted in past months.

Here’s an example of income tax deductions from an individual for six months who has a gross pay of 66666.8 (as in your case) and a fixed deduction of 2000. The tax rate in the example is 5% and suppose the individual is not entitled for exemptions in income for tax purpose.

It is also important to note that projected annual taxable earnings (column D) calculates the earnings taking into consideration the actual earnings of the individual (deductions, additional salary etc.) in the previous months and the future earnings as per assigned salary structure.

Also, please note this -

@akurungadam

And, in the last month of the payroll period the system calculates the income tax deductible for the whole year and then adjusts last months deduction to the balance amount.

Hope this helps, thanks.

[akurungadam]

I guess I was wrong about the tax deduction. I looked at it again, column F should have been divided by the number of remaining months which again points to the @mmh’s suggestion on having the deduction same for all months. I’m once again looking at the test cases for salary slip to see what I was missing. Will update here as I get to understand the implementation correctly.

[mmh]

Thank you for the beautiful explanation @akurungadam. I really appreciate the effort you took to explain the situation.

As you highlighted, I believe the calculation in F should be done with remaining months as previous month’s tax has already been deducted. I added 3 more columns with the way you explained and as expected IT deduction every month is the same, i.e. Rs. 3750.

Month S.No.	Gross annual	A: Gross Earning per month	B: Total Deduction for the month	C: (A-B) Taxable earnings per month	D: (C*12) Project taxable earning for the year	E: sum(G) Total of income tax deducted for previous months	F: (D*Tx - E) Annual tax liability on projected earnings	G: F/12 Income tax deduction for the month	E1: sum(H1) Total of income tax deducted for previous months	F1: (D*Tx - E1) Annual tax liability on projected earnings	H1: Income tax deduction as per remaining months
Apr	800000	66666.67	20000	46666.67	560000.04	0	45000	3750	0	45000	3750
May	800000	66666.67	20000	46666.67	560000.04	3750	41250	3438	3750	41250	3750
Jun	800000	66666.67	20000	46666.67	560000.04	7188	37812	3151	7500	37500	3750
Jul	800000	66666.67	20000	46666.67	560000.04	10339	34661	2888	11250	33750	3750
Aug	800000	66666.67	20000	46666.67	560000.04	13227	31773	2648	15000	30000	3750
Sep	800000	66666.67	20000	46666.67	560000.04	15875	29125	2427	18750	26250	3750
Oct	800000	66666.67	20000	46666.67	560000.04	18302	26698	2225	22500	22500	3750
Nov	800000	66666.67	20000	46666.67	560000.04	20527	24473	2039	26250	18750	3750
Dec	800000	66666.67	20000	46666.67	560000.04	22566	22434	1870	30000	15000	3750
Jan	800000	66666.67	20000	46666.67	560000.04	24436	20564	1714	33750	11250	3750
Feb	800000	66666.67	20000	46666.67	560000.04	26150	18850	1571	37500	7500	3750
Mar	800000	66666.67	20000	46666.67	560000.04	27721	17279	1440	41250	3750	3750

[mmh]

Apologies @clarkej. Will definitely follow your advice.

[akurungadam]

ERPNext, as you suggested had calculated the same income tax amount deduction when i tried on v12. Here’s is how it looks when I created a report to show the figures we are interested in -

[mmh]

Great! I believe the cloud version runs on 11.1.7 as I am doing a trial there.

Where can I play around with v12?

[mmh]

Sorry, I believe the cloud version is,

ERPNext: v12.7.1 (version-12)
ERPNext Support: v0.0.3 (master)
Frappe Framework: v12.5.1 (version-12)
Journeys: v0.0.1 (version-12)

So the calculations should have been correct. However, I don’t see the tax calculated properly. What am I missing?

[mmh]

So, this issue is still unresolved. Can I please get to know if there is any workaround for this issue?

[Not_a_countant]

Open a ticket from your cloud version.

[bernealmazan]

I think the error is due to the income tax being incorrectly treated by the program as a tax deductible item. That’s why the computed tax is always lower. I’ll post later the sample transactions showing this error. I got so tired and sleepy analyzing this.

[bernealmazan]

The computation is not correct.

The first table above is the Excel sheet of computation based on the tax slab (columns K-O) with the correct computation on Column O and Column P showing the incorrect computation of ERPNext.

The second table is the selected columns from the Payroll Register that shows the incorrect tax computation. The difference is the inclusion of the tax as a tax deductible item.

I think this is a showstopper for the payroll processing. Hope some ERPNext developers fix this quickly.

[silocoegypt]

What about version 13.0. (beta) . Is this issue is still the the same or solved …?

[rajeeb]

@mmh @silocoegypt
I hope this feature is working fine only

I had faced the same problem and solved it by checking :

1. These salary slips must be in a submitted state
2. Salary Slips must be generated for all months consecutively -

Assume the Employee joined in May then you should generate salary slips for May, June, etc in order. You cannot skip a month in between. And please make sure all the previous slips are in submitted state as well.

[silocoegypt]

Thank u Rajeeb

[murtaza_bk]

@rajeeb Even after Creating and Submitting the salary slips for all the consecutive months starting from April to March, the Income Tax(TDS) amount for 11 months is appearing constant, however the TDS amount for the last month i.e. April is shooting up to an insane figure. And the Net pay goes to negative.
Can you please propose a solution for this?
Please help!

[519_Hamza_Habeeb]

i am pretty sure that has to something to do with declaring tax exemptions,

if you want to start payroll in between the financial year enable opening and closing balances in payroll settings and add the tax deducted till date field in SSA