To Know Service Tax Abatement in SAP

Service Tax Legal Changes for Abatement 

Reverse Charge Mechanism 

Service Tax Abatement in SAP: This is new change came into picture after 2012 budget. The Reverse charge mechanism is effective from July 1st 2012.

Please go through the notification from the website,

Here we are just going to see how to customize for tax procedure TAXINJ for this new change with an example:

The Simple Scenario:

Previously Service tax was either paid fully by provider or receiver. But from current year, Service tax for few services, the Service Provider was charged a part of tax and Service Receiver was charged remaining part of the tax.

Let us take an example of Man power Service expense of Rs 1000 of a client who have abatement with service tax credit and let us see how the Service tax is deal with the reverse charge Mechanism.

Service tax

Customization for abatement under Reverse charge Mechanism:

Step 1: Creation of condition Types:

We would be already having 3 condition type set up for Taxable Services (Standard): JSER: Service tax credit , JEC3: A/P ECS for ST, JES3: A/P Sec. cess for ST. Along with this condition types we need to create 6 conditions to fulfill the new regime.


In our example, we have customized the standard and we have the following three conditions in the place of standard:  JSRT: Service tax credit, JEC3: A/P ECS for ST, JEC4: A/P Sec. Cess for ST.

Now we need to create the below list of conditions:

JSA1: Abatement conditions for Service Tax

Service Tax Abatement in SAP

Also See: SAP Clearing in Local Currency

JSA2: Abatement conditions 2 for Service tax (create as “Negative condition”)

JAE1: ECS for abatement

JAE2: Offset Entry for ECS for abatement

JAS1: Secess for abatement

JAS2: Offset entry for Secess for abatement

While creating these condition types, please use the same access sequence that was previously used to create the standard/ customized conditions for taxable services. Since we are dealing with the client having tax procedure “TAXINJ”, we need to use the access sequence “MWST”

Menu to Create these Six Condition Types

IMG -> Financial Accounting -> Financial accounting global settings ->Tax on Sales/Purchases -> Check calculation procedure.  Double click on “Define condition type” (T-code: OBQ1)

Step 2: Creation of Accounting Keys:

We need to create 6 Accounting keys to be assigned to these 6 Condition types:

PS1: Abatement conditions for Service Tax

PS2: Abatement conditions 2 for Service tax (create as “Negative condition”)

PS3: ECS for abatement

PS4: Secess for abatement

PS5: Offset Entry for ECS for abatement

PS6: Offset entry for Secess for abatement

Menu to Create Accounting Key

IMG -> Financial Accounting -> Financial accounting global settings ->Tax on Sales/Purchases -> Check and change settings for tax processing (T-code: OBCN)

Enter new entries:

Step 3: Assign GL accounts to Accounting Keys:

Once we are done with the Accounting key, we need to map the GL accounts to these accounting keys. We need to create the new GL in FS00 if we need to assign new GL to the accounting key.

Menu Path to Assign GL account

IMG -> Financial Accounting -> Financial accounting global settings ->Tax on Sales/Purchases -> Posting -> Define tax account (T-code – OB40)

Once we go to the above mentioned screen double click the transaction, a pop up for chart of accounts will appear. We need to give the chart of accounts and add new tax code that need to be created and relevant and required GL account.

We can create 6 different GLs as mention in SAP notes or else one GL and assign accordingly.

Also we need to define posting key “40” and “50” and rules for all 6 transactions (Accounting Keys).

Step 4: Assign these condition type and Account key to tax procedure:

This step is the most important Step and care has to be taken to make the sequence is set right and calculation steps are correct. All service tax related conditions should be kept together.

Menu Path to Assign these Condition Types to Tax Procedure:

IMG -> Financial Accounting -> Financial accounting global settings ->Tax on Sales/Purchases -> Check calculation procedure.  Double click on “Define Procedure” (T-code: OBQ3)

Click on the tax procedure “TAXINJ” and select “Control data” from left hand side

Step 5: Creation of Service Tax Codes

Last step is to create service tax codes according to client request and business scenario.

Path to create tax code:

IMG -> Financial Accounting -> Financial accounting global settings ->Tax on Sales/Purchases -> Calculation -> Define tax codes for sales and purchase (T-code – FTXP)

Country: IN (India)

Either we can copy an existing code or create a new one. Our example is a tax code N1 is created for 25% deductable from service provider and 75% is payable from Service Receiver.

Once the code is created we need to test data before finalizing the whole process.

Also See : SAP Currency Exchange Rates Table (OB08)

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