Setting Up Taxes In ERPNext
Setting up taxes in ERPNext involves configuring tax accounts and developing tax templates for precise and automated tax computation in transactions involving sales and purchases. In the Chart of Accounts, you must first define Tax Accounts and assign the account type "Tax." Next, you can apply standard tax rates, such as VAT or GST, to invoices and orders by creating Sales and Purchase Taxes and Charges Templates.
You can utilise item tax templates, which override the general tax template and apply tax rates to specific items or item groups, for more detailed tax regulations. Furthermore, the Tax Category feature enables you to automatically apply various tax templates according to the type of supplier or customer (e.g., exports, government, domestic). When used in tandem, these resources guarantee accurate tax posting and support adherence to regional tax regulations.
1. Tax Accounts
You must first create Tax Accounts in the Chart of Accounts before you can set up taxes.
Steps:
Navigate to Accounts > Chart of Accounts.
Choose or register for an account (such as sales tax, GST, or VAT).
Click Edit, then choose "Tax" under Account Type.
ERPNext is able to handle amounts posted in an account as tax-related by labelling it as "Tax," which is essential for accurate reporting and compliance.
2. Sales Taxes and Charges Template
With this template, taxes can be applied to sales documents such as:
Sales Orders
Sales Invoices
Delivery Notes
Reusable templates with various tax types (such as VAT @ 17%, withholding tax, etc.) can be made.
For Example:
Create a template named "VAT 17%."
Add a row with:
Charge type: On Net Total
Account Head: VAT-TX
Rate: 17%
ERPNext will automatically compute and post the tax based on the configured rate when this template is chosen in a sales invoice.
3. Purchase Taxes and Charges Template
Although it functions similarly to the sales template, this one is utilised in purchase transactions such as:
Purchase Orders
Purchase Invoices
Purchase Receipts
Depending on your vendor's location and tax responsibilities, you may add taxes such as import duties, VAT on purchases, etc.
For Example:
Template Name: Purchase VAT 17%
Charge Type: On Net Total
Account Head: Enter VAT - TX
Rate: 17%
In order to claim input tax credit, this template guarantees precise tracking of VAT paid to suppliers.
4. Item Tax Template
Regardless of the general sales or purchase tax template, this is used when particular items or item groups are subject to different taxes. When both are used, ERPNext prioritises item tax templates over general tax templates.
Use Case:
You sell books (taxed at 0%) and electronics (17%).
When you apply a 0% item tax template to books, ERPNext will replace the 17% sales tax template for those specific items.
This guarantees accurate tax treatment without requiring distinct invoice templates for every tax rate.
5. Tax Category
Tax Category helps in automatically choosing the appropriate tax template according to the supplier or customer.
When a party is assigned a Tax Category (such as "Export," "Domestic," or "Government Supplier"), ERPNext will:
Select the appropriate Sales or Purchase Tax Template automatically.
Reduces manual errors
Save time when sending invoices.
For instance:
you create the category "Export."
Assign it to a foreign customer
When creating an invoice, ERPNext automatically uses the "Export VAT 0%" template.