View source for Frappe HRMS - Ch08 Tax and Benefits

= Frappe HRMS – Chapter 8: Tax and Benefits =

<div style="background:#f8f9fa; border:1px solid #ddd; border-radius:4px; padding:10px 16px; margin-bottom:16px;">
Part of the [[Frappe HRMS]] documentation series. &nbsp;|&nbsp; Upstream: [https://github.com/frappe/hrms github.com/frappe/hrms]
</div>

The Tax and Benefits module handles income tax slab configuration, employee tax exemption declarations and proof submissions, flexible benefit applications, retention bonuses, incentive payments, and other income declarations used in annual tax computation.

----

== 1. Income Tax Slab ==

=== Purpose ===
Defines the graduated tax bracket table used to compute withholding tax deducted from employee salaries. In the Philippines, this encodes the TRAIN Law (RA 10963) income tax schedule.

=== Philippine TRAIN Law Tax Table (2025) ===

{| class="wikitable"
|-
! Annual Taxable Income !! Tax Rate
|-
| Not over ₱250,000 || 0%
|-
| Over ₱250,000 to ₱400,000 || 15% of the excess over ₱250,000
|-
| Over ₱400,000 to ₱800,000 || ₱22,500 + 20% of the excess over ₱400,000
|-
| Over ₱800,000 to ₱2,000,000 || ₱102,500 + 25% of the excess over ₱800,000
|-
| Over ₱2,000,000 to ₱8,000,000 || ₱402,500 + 30% of the excess over ₱2,000,000
|-
| Over ₱8,000,000 || ₱2,202,500 + 35% of the excess over ₱8,000,000
|}

=== Steps ===
# Go to '''Payroll → Tax & Benefits → Income Tax Slab → New'''.
# Enter '''Slab Name''' (e.g., Philippine TRAIN Law 2025), '''Effective From''', and '''Company'''.
# Set '''Currency''' to PHP.
# Under '''Taxable Salary Slabs''', add each bracket:
#* From Amount, To Amount, Percent Deduction, Fixed Amount (the base tax for that bracket)
# Under '''Other Charges''', add any additional surcharges or levies if applicable.
# Save and submit.

=== Assignment ===
Income Tax Slabs are referenced in the '''Salary Structure''' and activated via '''Employee Tax Exemption Declaration''' and '''Employee Benefit Application''' records.

-----

== 2. Employee Tax Exemption Declaration ==

=== Purpose ===
The employee's annual declaration of investments and expenses that reduce their taxable income (e.g., 80C equivalent exemptions, if applicable). For the Philippines, this covers declarations of non-taxable income sources and de minimis claims.

=== Steps ===
# Go to '''Payroll → Tax & Benefits → Employee Tax Exemption Declaration → New'''.
# Select '''Employee''' and '''Payroll Period'''.
# Under '''Declarations''', add each exemption category and declared amount.
# Submit. The declared amounts reduce the employee's projected annual tax.

=== Note ===
For the Philippines, the primary tax computation driver is the TRAIN Law slab. Exemption declarations are used for items like:
* Non-taxable de minimis benefits in excess of limits (to track what portion is taxable)
* Other income declarations (per BIR requirements)

-----

== 3. Employee Tax Exemption Proof Submission ==

=== Purpose ===
At year-end, employees submit documentary proof (receipts, certificates) for previously declared tax exemptions. The system validates proof against declarations and adjusts the final annual tax computation accordingly.

=== Steps ===
# Go to '''Payroll → Tax & Benefits → Employee Tax Exemption Proof Submission → New'''.
# Select '''Employee''' and '''Payroll Period'''.
# For each declared exemption, provide the proof amount and attach supporting documents.
# Submit.
# System recalculates remaining withholding tax for the year based on proven vs declared amounts.

=== Deadline ===
In the Philippines, BIR Form 2316 must be issued by January 31 of the following year. Ensure proof submissions are collected and finalized before year-end payroll closing.

-----

== 4. Employee Tax Exemption Category ==

=== Purpose ===
The top-level category for tax exemptions (e.g., De Minimis Benefits, Other Income). Parent grouping under which sub-categories are created.

=== Steps ===
Payroll → Tax & Benefits → Employee Tax Exemption Category → New → Enter name → Save.

-----

== 5. Employee Tax Exemption Sub Category ==

=== Purpose ===
Specific exemption line items under a category (e.g., "Rice Subsidy", "Medical Cash Allowance", "Uniform Allowance" under "De Minimis Benefits"). Employees declare amounts per sub-category.

=== Steps ===
# Go to '''Payroll → Tax & Benefits → Employee Tax Exemption Sub Category → New'''.
# Enter Sub Category Name.
# Link to the parent '''Employee Tax Exemption Category'''.
# Set the statutory maximum exemption limit.
# Save.

-----

== 6. Employee Benefit Application ==

=== Purpose ===
For organizations offering flexible benefit programs — employees select which components (meal allowance, medical, transportation, etc.) they want to receive within an approved budget. Submitted at the start of the benefit period.

=== Steps ===
# Go to '''Payroll → Tax & Benefits → Employee Benefit Application → New'''.
# Select '''Employee''' and '''Payroll Period'''.
# Under the '''Benefits''' table, select which benefit components to apply for and the amount for each.
# Total must not exceed the employee's maximum benefit entitlement.
# Submit for HR approval.

-----

== 7. Employee Benefit Claim ==

=== Purpose ===
The actual claim against an approved Employee Benefit Application. Submitted when the employee incurs the expense for which the benefit was approved.

=== Steps ===
# Go to '''Payroll → Tax & Benefits → Employee Benefit Claim → New'''.
# Link to the approved '''Employee Benefit Application'''.
# Enter claim date, amount, and attach receipt.
# Submit. Amount is included in the next payroll run.

-----

== 8. Retention Bonus ==

=== Purpose ===
A one-time payment made to retain a specific employee. Processed outside the standard salary structure.

=== Steps ===
# Go to '''Payroll → Tax & Benefits → Retention Bonus → New'''.
# Select '''Employee''', '''Bonus Payment Date''', and '''Bonus Amount'''.
# Save and submit.
# System creates an '''Additional Salary''' entry for inclusion in the payroll run on the specified date.

-----

== 9. Employee Incentive ==

=== Purpose ===
Performance-linked one-time incentive payments. Similar to Retention Bonus but tied to performance metrics or milestone achievements.

=== Steps ===
# Go to '''Payroll → Tax & Benefits → Employee Incentive → New'''.
# Select '''Employee''', '''Salary Component''', '''Payroll Date''', and '''Incentive Amount'''.
# Submit. Creates an Additional Salary for the relevant payroll period.

-----

== 10. Employee Other Income ==

=== Purpose ===
Allows employees to declare other income sources (e.g., rental income, freelance income, spouse income) so that the employer can compute the correct annual tax withholding. Required under BIR rules for employees whose total income from all sources exceeds thresholds.

=== Steps ===
# Go to '''Payroll → Tax & Benefits → Employee Other Income → New'''.
# Select '''Employee''' and '''Payroll Period'''.
# Enter each other income source and projected annual amount.
# Submit. System incorporates this into the annual tax computation.

-----

== Reports ==

* '''Income Tax Computation''' — per-employee annual tax liability breakdown
* '''Income Tax Deductions''' — monthly TDS deduction register for BIR reporting
* '''Professional Tax Deductions''' — (if applicable) local professional tax register
* '''Provident Fund Deductions''' — government contribution register (SSS/PhilHealth/Pag-IBIG)

----

== Related Chapters ==

* [[Frappe HRMS]] — main index
* [[Frappe HRMS - Ch07 Payroll]] — income tax slabs are applied during salary slip computation
* [[Frappe HRMS - Ch09 Philippine Localization]] — detailed setup for Philippine government contributions and BIR compliance

[[Category:ERPNext]]
[[Category:Frappe HR]]
[[Category:Payroll]]
[[Category:Tax]]
[[Category:Comfac]]