Consider a scenario where tax needs to be calculated based on the previous tax amount rather than the item amount.

For instance, let’s say you have 5 items, and a service charge is calculated on the net total of these 5 items. Additionally, you need to calculate a 5% VAT on the service charge of the items, not on the net total of the invoice. To achieve this, follow these steps:

1. In the Sales Invoice, navigate to the Sales Taxes and Charges section. In row 1, select the Type as “On Net Total” and choose the appropriate Account Head. If not set already, enter the Rate. The amount for this specific account head is calculated under the Amount column.
2. Next, you’ll need to compute tax based on the previous row’s amount, which is the tax amount itself. To do this, select the Type as “On Previous Row Amount”. Set the Account Head and Rate as necessary. Expand the row and set the Reference Row #.