Item Tax Template

Item Tax Template comes in handy for taxation on an item-by-item basis and allows flexibility when certain items are to be treated under different tax than the normal rate prescribed in the Sales/Purchase Taxes and Charges Template.

Suppose you have some of your Items with tax rates other than those specified in the default tax rate table in the Taxes and Charges table, then you can create an Item Tax Template and assign it to an Item or Item Group. The default tax rate mentioned in the Taxes and Charges table will never take precedence over the rate mentioned in the Item Tax Template.

For example, when GST is set at 18% and placed in the Taxes and Charges table of a Sales Order, the default is to charge all the items of the Sales Order. However, when you have one item taxable at GST 5% and another item tax-free (non-taxable), you can accomplish this by creating an Individual Item Tax Templates and applying this to that particular item. The system will automatically identify the appropriate tax at item level when calculating taxes on the document.

To view the Item Tax Template list, proceed to:

1. Prerequisites

As a prerequisite to creating and utilizing an Item Tax Template, make sure the following are prepared:

• Item: The item should already be available in the system to which a template can be attached.
• Account Settings: In Accounts Settings, turn on the setting "Automatically add Taxes and Charges from Item Tax Template". This causes ERPNext to automatically include the tax template used on any Item or Item Group when generating a sales or purchase transaction.

2. How to create an Item Tax Template

1. Navigate to the Item Tax Template list and click on New.
2. Type in a title for the Item Tax Template so that it is easily recognizable (e.g., GST 5% Exempt).
3. In the tax table, choose the correct Account Head (e.g., GST Input/Output account).
4. Define the overriding tax rate that must be used for this template. Enter 0 if the item is tax exempt.
5. Insert additional rows if there are several tax accounts to be applied (e.g., CGST and SGST).
6. Click Save.

Now the Item Tax Template can be assigned to an Item. To accomplish this, go to the Item master, scroll down to the Item Tax field, and choose the preferred Item Tax Template.

Note: It is recommended that the same Sales/Purchase Taxes and Charges Template chosen here in Tax Rule is not used, as this can lead to conflicts and unusual outcomes. If you wish to employ the same tax percentages in both Tax Rule and Item Tax Template, prepare different templates with different names for the Sales/Purchase Taxes and Charges Templates.

2.1 Add Mention Tax Applicable in the Item Master

Tax templates are pre-filled with certain tax amounts. But in actual scenarios, some items are taxed at a rate other than others. In that case, you must manually assign the tax in the Item Master.

• Open the Item record.
• In the Taxes area, insert a new row in the tax table.
• Choose the correct Tax Type / Account Head (e.g., CGST, SGST, VAT, GST Output).
• Provide the default overriding tax rate for this specific item.

After you save it, this rate will override the default Sales/Purchase Taxes and Charges Template in every sales or purchase transaction where the item is used.

Example: The standard Sales Taxes and Charges Template normally uses GST @ 18%, but you have set 6% in the Item's tax table. In that case, transactions of this item will use 6% GST in place of 18%.

For products that are absolutely exempt from tax, just put 0% as the rate in the Item's tax table. It will make sure that no tax is charged for such products for any transaction.

Important Note: To be effective, the Item Tax Template requires that the tax types (accounts) identified in the Item Tax Template also appear in an item Sales Taxes and Charges Template which is being applied to the transaction. Unless the accounts are matched the overriding rate cannot be used by ERPNext.

If you have more than one item with varying tax rates in the same tax category and you wish to control them, you need to post them under separate tax heads (e.g., "VAT 14%", "VAT 5%", "GST 12%"). ERPNext will thus be able to differentiate between them and automatically apply the right rate.

2.2 Tax Calculation in Transaction

In all the sales transactions such as **Quotation, Sales Order, Sales Invoice, etc. ERPNext initially retrieves the Sales Taxes and Charges Template applicable in the transaction. This is the default rate of the entire document.

But whenever an Item Tax Template is set for a specific item, ERPNext prefers the item-level tax setting. Here, the system uses the rate specified in the Item Tax Template in place of the default rate in the Sales Taxes and Charges Template.

Example: Suppose the Sales Taxes and Charges Template is a 6 percent tax. When any item in the transaction is configured to receive an Item Tax Template at a rate of 3%, ERPNext will impose a tax of 3% on that item, but will still charge a tax of 6% on the other items where the template does not explicitly specify that particular rate.

This method ensures accurate and adjustable tax computation for various items within the same transaction, particularly if some items are taxed lower or are exempted.

2.3 Item Tax Template per Item

You may also manually choose or edit the Item Tax Template per item directly from within a transaction.

• When adding items in sales or purchase documents (e.g., Quotation, Sales Order, Purchase Invoice), ERPNext will automatically bring the default Item Tax Template associated with the Item or Item Group.
• Where necessary, you can override this by manually choosing a different Item Tax Template in the Item Tax Template field provided for that particular item row.

This flexibility is beneficial where certain transactions require a different tax treatment of the same item, say, where the item is being sold in a tax-exempt situation or a promotion scheme.

2.4 Item Wise Tax on an Item Group

You can define an Item Tax Template at the Item Group level by altering the Item Tax table within the Item Group document.

• Open the Item Group record.
• In the Item Tax field, set the target Item Tax Template.

All items in this Item Group will then adopt and employ the targeted Item Tax Template. But if a specific item under this group has a specific Item Tax Template defined, that would override the group-based setup.

This is especially useful where there are large lists of similar items sharing the same tax rates to reduce the number of times the same configuration can be done.

2.5 Item Tax Validity

ERPNext gives you the choice of giving Item Tax Templates a validity period. In this fashion, the system would automatically charge the correct tax rate depending on the date the transaction was made.

• ERPNext checks the posting date of a document when making a transaction. That system then reads the first valid tax template between the date range contained in the Item Tax Template.
• When the given date has more than one valid template, the ERPNext will utilize the first valid template in the Item Tax table.
• Where no compatible valid template can be found, ERPNext falls back to using the first template that has no date in the Item Tax table under the field Valid From.
• With respect to **Purchase Invoices ERPNext uses the Supplier Invoice Date rather than the Posting Date in determining the valid Item Tax Template to be used.

This area can be particularly helpful when a change in the tax rates is to be processed over a certain time span, such as when the government announces changes in GST or VAT.

2.6 Some Points to Note

• When you leave the field of Tax Category in an Item blank, ERPNext will impose the default Item Tax Template on transactions.
• You can create and assign different **Item Tax Templates to different Tax Categories and thus be flexible across sales channels, geos, or customer segments.
• In order for an Item Tax Template to successfully override tax in transactions, there needs to be a matching row in the Taxes and Charges Template having the same Account Head specified. If not, the overriding rate will not be applied.
• If your need is to impose taxes only on the items with Item Tax Templates, you can make the default tax rate in the Sales/Purchase Taxes and Charges Template equal to 0%. In this manner, the ERPNext computes the taxes only from the item-level settings.

3. Related Topics

• Tax Rule
• Sales Invoice
• Purchase Invoice

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