1. Prerequisites

Before creating and using an Item Tax Template, it is advised to create the following first:

1. Item
2. Enable ‘Automatically add Taxes and Charges from Item Tax Template’ in Account Settings

2. How to create an Item Tax Template

1. Go to the Item Tax Template list and initiate a new entry.
2. Provide a suitable title for the Item Tax Template.
3. Choose an account and specify the overriding tax rate.
4. Add additional rows if necessary.
5. Save the changes.

Now that the Item Tax Template has been configured, it can be assigned to an Item. Proceed to the Item’s settings, navigate to the Item Tax section, and select the relevant Item Tax Template.

Note: It is recommended to avoid using the Sales/Purchase Template selected in the Tax Rule section, as it may lead to interference. If you intend to utilize the same tax rates for both Tax Rule and Item Tax Template, ensure to use a distinct name for the Sales/Purchase Tax Templates.

2.1 Mention Tax Applicable in the Item master

Tax templates come preconfigured with default values. If certain items require a different tax rate than others, you can adjust it in the Item master settings. Navigate to the tax table within the Item settings, insert a new row, select the appropriate tax type, and modify the rate accordingly. Subsequently, this new rate will supersede the template rate when generating orders or invoices. For instance, in the provided screenshot, the tax rate is specified as 5%, which will be applied in transactions.

For items that are completely exempt from tax, indicate a tax rate of 0% in the Item master settings.

> Note: For Item Tax Template to work, you need to ensure that the tax types (accounts) set in Item Tax Template (with changed tax rates) are present in the Sales Taxes and Charges Template.

> If you want to include multiple items with different tax rates, you need to have record them under different tax heads. For example, VAT 14%, VAT 5% etc.

2.2 Tax Calculation in transaction

In sales transactions such as Quotation, Sales Order, and Sales Invoice, the taxes applied to items are typically calculated based on the Sales Taxes and Charges Template chosen. Nevertheless, if specific items are associated with an Item Tax Template, the taxes for those items are determined according to the rates specified in the Item Tax Template, overriding the rates defined in the Sales Taxes and Charges Template.

2.3 Item Tax Template for each Items

You can also manually select a different Item Tax Template for each Item in a transaction.

2.4 Item wise tax on an Item Group

You can allocate the Item Tax Template to an Item Group by adjusting the Item Tax table located in the Item Tax section within the Item Group document.

When an Item Tax Template is applied to an Item Group, it will be applicable to all Items within that group unless a specific Item within the Item Group has its own Item Tax Template assigned to it.

2.5 Validity of Item Taxes

• Depending on the transaction’s posting date, a suitable tax template will be automatically retrieved.
• If there are multiple valid tax templates, the first applicable one from the Item Tax table will be selected.
• If no valid tax templates are available, the first tax template without a ‘Valid From’ date in the Item Tax table will be chosen.

> Note: While adding items in Purchase Invoice first preference will be given to ‘Supplier Invoice Date’ instead of ‘Posting Date’ for fetching valid Item Tax Template.

2.6 Some points to note

• If the Tax Category is left empty, the default Item Tax Template will be utilized for Items in transactions.
• Distinct Item Tax Templates can be designated for various Tax Categories.
• For an Item Tax Template to supersede taxes, there should be a row in the Taxes and Charges table with the identical tax Account Head featuring a standard tax rate.
• To exclusively apply taxes on Items with an Item Tax Template, you can set the standard tax rate as 0.

3. Related Topics

1. Tax Rule
2. Sales Invoice
3. Purchase Invoice