Taxes
1. Overview & Definition
2. Withholding Taxes
3. Tax Computation
4. How To Create A Tax In Odoo
1. Overview
- In Odoo, the Taxes feature is used to manage all types of taxes such as GST, VAT, Sales Tax, and Purchase Tax.
Taxes are applied automatically on customer invoices and vendor bills, helping businesses calculate tax correctly and generate accurate tax reports.Definition
Taxes in Odoo are predefined rules that calculate tax amounts based on a percentage or fixed value.
These taxes are linked to products, invoices, and bills so that tax is calculated automatically during transactions.Explanation
- When you create a tax in Odoo, you tell the system
- What the tax name is
- Whether it is for sales or purchases
- How the tax should be calculated (percentage)
- How much tax should be applied
- Which country and tax type it belongs to
- Once the tax is created and activated, Odoo automatically
- Applies the tax on invoices and bills
- Calculates the correct tax amount
- Shows tax details clearly on invoices
- Includes tax data in tax and GST reports
This means you do not need to calculate tax manually.
Odoo handles everything in the background - Why Taxes Are Important in Odoo
- Ensures correct tax calculation
- Saves time by automating tax application
- Helps maintain legal and tax compliance
Generates accurate tax and GST reports
Taxes in Odoo help you calculate and manage GST and other taxes automatically on invoices and bills.
2. Withholding Taxes
What is Withholding Tax?
Withholding tax, also called retention tax, is a type of tax where the customer deducts a certain amount from the invoice payment and pays that deducted amount directly to the government.
In normal taxes, the tax amount is added to the subtotal of the invoice to calculate the total amount payable. However, in the case of withholding tax, the tax is not added to the total. Instead, it is deducted from the payment amount, so the customer pays less to the vendor, and the deducted tax amount is handled separately for government payment.
How Withholding Tax Works in Odoo
In Odoo, withholding tax is created as a negative taxe1.
This means the tax amount reduces the total payable amount on the invoice.
How Withholding Tax Works in Odoo:
Note: Withholding tax is fully supported in Odoo Enterprise Edition. In Odoo Community Edition, it can only be managed using a manual workaround.
How to Configure Withholding Tax in Odoo
Step 1: Click on the Accounting application icon available on the screen to open the module.
Step 2: Once the Accounting module opens, go to Configuration → Taxes.
Create a new tax and enter a negative amount in the Amount field to represent the withholding tax.
Step 3: Assign the appropriate Withholding / TDS payable account so the deducted amount can be tracked separately.
In the Community Edition, withholding tax is handled manually using negative taxes.
3. Tax Computation
The Tax Computation field in Odoo defines how the tax amount is calculated and what value the tax is applied on.
It tells the system the exact calculation logic for a tax.
Without selecting the correct tax computation method, Odoo will not know how to calculate the tax amount correctly on invoices and bills.
When you create or configure a tax, choosing the correct Tax Computation option is very important because it directly affects the final invoice amount and tax reports.
Group of Taxes
This option is used when more than one tax needs to be applied together on the same price.
Instead of selecting each tax separately, multiple taxes are grouped into a single tax rule.
Odoo calculates each tax inside the group and applies them together on the invoice.
This is commonly used when different taxes must be charged at the same time, such as combined tax structures.
Fixed
The Fixed tax computation applies a fixed tax amount, regardless of the product price or quantity.
The tax amount remains the same for every invoice line where this tax is applied.
This option is used when the tax or charge does not depend on the product value.
Odoo simply adds or deducts the fixed amount every time the tax is used.
Percentage of Price
This option calculates the tax as a percentage of the product price before tax.
The tax is applied only on the base price, excluding any other taxes.
This is the most commonly used option for standard taxes.
Odoo multiplies the price by the given percentage and calculates the tax amount automatically.
Percentage of Price Tax Included
This option is used when the product price already includes tax.
Odoo calculates the tax portion from the total price instead of adding tax separately.
The final price shown to the customer does not change because the tax is already included in the price.
This option is commonly used in retail pricing where prices are displayed as tax-inclusive.
Custom Formula
The Custom Formula option allows the user to define a custom tax calculation rule using a formula.
This is used when tax calculation does not follow a standard fixed or percentage method.
It provides flexibility for complex or special tax rules.
This option is generally used by advanced users or accountants for specific tax requirements.
4. How To Create a Tax in Odoo
Step 1: Click on the Accounting app icon shown on the screen.
Step 2: After opening the accounting app Click on Configuration From the dropdown list, click on Taxes.
The Taxes page will open.
Step 3: On the Taxes page, click the New button to create a new tax.
Step 4: In the Tax Name field, enter the name of the tax.
Example:
SGST 9%
CGST 9%
IGST 18%
This name will appear on invoices.
Step 5: In the Tax Type field, select the tax type.
Example: Select Sales for customer invoices & Select Purchases for vendor bills
Choose Sales if the tax is charged to customers.
Step 6: In the Tax Computation field, select Percentage.
GST is always calculated as a percentage.
Step 7: In the Amount (%) field, enter the tax percentage.
Example
SGST → 9%
CGST → 9%
IGST → 18%
Step 8: In the Tax Scope field, keep it as default.
This decides where the tax is applicable.
Step 9: In the Indian Tax Type field, select the correct option
Example:
SGST / UTGST
CGST
IGST
This is mandatory for GST reporting in India.
Step 10: Keep Fiscal Position as All.
This means the tax can be used for all customers.
Step 11: Make sure the Active toggle is ON.
If Active is OFF, the tax will not be available in invoices.
Step 12: Scroll down to Distribution for Invoices.
Base line → Applied on product amount
100% of tax → Applied on tax amount
These lines are auto-created. Do not delete them.
Step 13: Under Distribution for Refunds, keep the same structure:
Base
100% of tax
This is used when credit notes are created.
Step 14: Click on the Advanced Options tab.
Step 15: In Label on Invoices, enter a short label.
Example:
SGST @ 9%
IGST @ 18%
This label appears on customer invoices.
Step 16: In the Tax Group field, select the correct group.
Example:
SGST / UTGST
CGST
IGST
Tax group helps in GST summary and reports.
Step 17: In the Country field, select India.
This is required for GST compliance.
Step 18: Keep Included in Price unchecked.
GST is usually added separately, not included in price.
Step 19: Keep Affect Base of Subsequent Taxes unchecked.
Enable this only for special tax calculations.
Step 20: After filling all details correctly, click the Save button.
Your tax is now created and ready to use in invoices and bills.
