India is now one of the three greatest Asian economies in terms of purchasing power parity. It is the world’s largest democracy making it an appealing market for international companies and investors. It makes sense for a country with a population of over a billion to have a range of labor regulations, tax compliances (direct & indirect), investment frameworks, incentives and subsidies.

This is why India localization has gained traction among ERP vendors such as SAP’s Gold Partner VC ERP and end users. Effective implementation of India Localization is a critical success factor for ERP implementations, such as SAP S/4HANA Cloud.

This is a globally accepted understanding that multinational corporations must have the organizational capacity to adapt to local norms and requirements. A business operating in an international environment requires a Cloud ERP that enables global operations.

SAP S/4HANA Cloud’s ability to support enterprises in scaling their business processes around the world by addressing country-specific requirements and regulatory needs is a key differentiator.

The Need for Localisation in ERPs

sap localizing partner

Enterprise Resource Planning (ERP) implementation in business today is considered the price you pay for running the business.

ERPs such as the SAP S/4HANA is an extensive version of an accounting software package that is based on best industry practices. They offer integrated transaction processing and information access. This access can apply to multiple organizational units and business functions.

These business functions may include financial and accounting, human resources, supply chain management and customer service, among others. The SAP S/4HANA ERPis built around a single central database.

So, when we talk about localization, what we mean is the process of creating or adapting an ERP for a specific location.

When it comes to ERP systems, SAP understands that one size does not fit all, which means that businesses may require specific localization features.

Thus, SAP provides out-of-the-box features built-in with dedicated localization features to the SAP S/4HANA Cloud for specific countries.

A typical challenge in ERP adoption has been the mismatch issue, which refers to the gap between the standard functionality offered by the system and that required by the adopting organization.

Consider this basic scenario:Challenges and benefits of sap s4hana

A US-based corporation sets up a typical ERP system in its Indian branch. The ERP follows a January-December fiscal year framework, which corresponds to the US financial calendar. However, India has a unique fiscal year that runs from April 1st to March 31st.

This mismatch causes various issues:

  • Reporting Inaccuracy:

The ERP-generated financial reporting did not correspond with the Indian fiscal year.

  • Tax Compliance Issues:

Calculations and filings based on the regular calendar may not comply with Indian tax requirements, potentially resulting in penalties.

  • Data Management Challenges:

Reconciling data between the ERP system and Indian accounting norms becomes difficult and error-prone.

This is why, in order to solve these localisation challenges, the Indian branch needs a sophisticated ERP system such as SAP S/4HANA for localization in the Indian market.

What Is Localisation in SAP?

Localization in SAP is the process of customizing SAP S/4HANA ERP to the specific requirements of a particular country or region. This includes tailoring the system to meet with local rules and regulations like GST, Income Tax (TDS, TCS), Payroll and so on in India.

Thus, SAP localization allows enterprises to derive value from their core business systems across geographies. This means that your SAP S/4HANA-powered multinational enterprises which are operating in multiple countries, can modify business operations to comply with local rules and regulations in the country where you operate.

In fact, SAP offers S/4HANA Cloud with standard localization in 43 countries and 27 languages.

India Localisation in SAP S/4HANA: Addressing Compliance Needs Like GST

India Localization in SAP S/4HANA Cloud is an integrated solution that addresses India-specific legal, statutory and business requirements.

Here’s a list of specific legislative mandates covered by SAP S/4HANA Cloud for Indian organizations.

The ERP software meets requirements such as:

  1. Prepare financial statements, such as balance sheets and profit and loss statements, in accordance with Indian accounting standards.

  2. Creating e-invoices, e-way bills, GSTR filings, reverse charge mechanisms, e-ledger reconciliation and other documents to ensure compliance with the complex GST framework.

  3. Enables TDS (Tax Deducted at Source) calculation, TCS (Tax Collected at Source) processing, advance tax payments and integration with Income Tax e-filing.

  4. Manages excise duty calculations, CENVAT credit management, invoice generation and reporting requirements.

  5. Covers regulations for withholding taxes, stamp duty and payroll taxes, including statutory deductions such as Provident Fund (PF), Employee State Insurance (ESI), Professional Tax (PT) and Labor Welfare Fund (LWF).

  6. Configuring the SAP system to manage employee contributions to the Provident Fund, India’s retirement savings scheme.

  7. Integrating SAP’s digital signature capabilities to electronically authenticate documents, as required by Indian law for certain transactions.

Let’s discuss the features related to India localisation in SAP S/4HANA in detail.

Key Functionalities of India Localization in S/4HANA

sap s4hana capabilities

Let’s explore SAP S/4HANA’s India-specific capabilities with VC ERP Consulting, your trusted SAP implementation partner. Our team of consultants and subject matter experts will walk you through the entire range of features designed to help you streamline your operations and comply with local regulations.

1. Master Data:

A master data in SAP S/4HANA ERP holds key information about various facets like materials, business partners (customers & vendors) and employees including payroll information.

In India, managing accurate and up-to-date business partner data plays a crucial role in ensuring compliance with Goods and Services Tax (GST) and other regulations. SAP S/4HANA Cloud simplifies your tax processes by providing comprehensive tools to manage key identifiers like GSTIN, PAN and HSN/SAC codes.

  • Managing GST Identification Numbers, PAN and Other Relevant Data:

Your business operating in various countries/regions need the necessary data structure. This is where SAP S/4HANA ERP software helps with a set of tools to store essential information for all your business partners including customers and suppliers.
  1. You can capture and maintain identification numbers like: GST Identification Number (GSTIN), Permanent Account Number (PAN), Corporate Identity Number (CIN), Aadhaar Number, Tax Classification for Output/Input Taxes, Withholding Tax Data for Suppliers in the business partner master data.

  2. You can manage multiple addresses for customers with their corresponding GSTINs including India-specific localizations.

  • Maintaining HSN/SAC Codes for Materials and Services:

With SAP S/4HANA Cloud for India localisation, you can–
  • Maintain HSN (Harmonized System Nomenclature)/SAC (Service Accounting Code) for all materials and services offered or procured.

So that your business can ensure:

  • Correct tax calculation and reporting

  • Classification for e-invoices and other regulatory documents

2. Tax Management:

SAP S/4HANA’s India Localization helps you streamline your tax compliance processes, minimize errors and ensure timely filing of returns, saving you time, effort and potential penalties.

  • Configuring GST compliance features for e-invoices, e-way bills and returns (GSTR-1, GSTR-3B, etc.).

S/4HANA India Localization offers comprehensive functionalities to manage your GST compliance seamlessly:
  • E-invoice compliance:

Generate and transmit e-invoices to the GSTN portal directly from S/4HANA and ensure data accuracy and adherence to regulations.

  • E-way bill generation:

Create and manage e-way bills for the movement of goods within India to simplify logistics and compliance.

  • GST return filing:

Generate various GST returns like GSTR-1, GSTR-3B, GSTR-9 and others directly from S/4HANA with pre-filled data and validation checks so that you reduce manual effort and errors.

Here’s an example of the November GSTR1 report generated on ‘Run Statutory Reports’ app using SAP S/4HANA Cloud for India localization.

This app helps you create, generate and submit various legal reports required for compliance with Indian tax regulations, including:

  • GSTR1 for Monthly return of outward supplies

  • GSTR3B for Monthly summary of sales and purchases

  • GSTR6 for Monthly return for purchases from unregistered suppliers

  • Managing TDS/TCS (Tax Deducted/Collected at Source) with relevant configurations and reporting

The provision under Section 194Q states that the income tax department requires any firm or individual to deduct tax at the source if the payment for goods and services exceeds Rs. 50 lakhs, such as rent, consultation, legal fees, royalty, technical services, etc.

While TCS is levied on products by the seller, it is collected from the buyer at the time of sale under Section 206C of the Income Tax Act of 1961. It outlines the items and services on which TCS is applicable, with the threshold for TCS on the sale of goods being Rs. 50 lakh.

Let’s understand how SAP S/4HANA is helpful in managing your company’s TDS/TCS compliances:

  • It starts with an SAP S/4HANA implementation partner like VC ERP who will be setting up withholding tax types, tax codes and other parameters based on Indian regulations.

  • After the configurations, you can begin operation for supplier invoice posting to deduct TDS during invoice processing.

  • This leads to generating challans (payment slips) for submitting TDS/TCS to the government.

  • SAP S/4HANA Cloud helps manage accruals and reversals of TDS/TCS liabilities because in India, you must make an adjustment entry for all the accrued withholding taxes.

  • Lastly, reporting. This step is basically generating statutory reports in the format required by Indian tax authorities.

  • Integrating with SAP Integration Suite for GST Suvidha Provider (GSP) connection

Here is some food for thought. Assume your organization uses SAP S/4HANA Cloud to manage sales and inventory. When a sales order exceeds ₹50,000, the system will generate an eWay bill.

However, SAP S/4HANA Cloud is unable to connect directly to the GST Network. This is where GST Suvidha Providers (GSPs) step in. GSPs serve as liaisons between your SAP S/4HANA ERP system and the GST Network. They receive eWay bill data from SAP and securely transmit it across the network.

This has several benefits:
  • Streamlined communication, seamless data exchange and return filing directly from your system.

  • Compliance assurance to evolving GST regulations for avoiding penalties.

Overall, These Are the Benefits of SAP S/4HANA Cloud for Tax Management:

  • Gaining advantage from a robust tax engine that automatically calculates GST and other taxes based on configured rules and rates.

  • Maintain detailed audit trails for all tax-related transactions for easier reconciliation and compliance checks.

  • Generate various tax reports beyond GST returns, including GSTR-2A, GSTR-4A and others for comprehensive tax management.

3. Document and Reporting Compliance:

SAP Document and Reporting Compliance is SAP’s solution to managing:-

  • E-invoicing
  • Real-time reporting
  • Statutory reporting

The Indian government requires businesses to submit invoices and other documents electronically. This helps prevent tax evasion and streamline business processes. By using SAP S/4HANA for India localisation, you can manage this process efficiently and stay compliant with the latest regulations.

How does it work?
  • Document creation:

Enter data for invoices, e-way bills and other documents in SAP S/4HANA.

  • Automatic checks:

The system verifies data format and ensures compliance with legal requirements.

  • Electronic submission:

Send documents directly to government authorities or authorized intermediaries.

  • Error handling:

Fix any errors identified automatically or manually.

  • Audit logging:

Track all changes and actions made to documents for future reference.

  • Centralized view:

Use the eDocument Cockpit to monitor all electronic documents and their status.

4. Other Features:

SAP S/4HANA includes several unique features that are specifically tailored to Indian organizations. This summary explanation should be simple to follow!

  • Accurate Tax Calculations for “Business Places”:

SAP S/4HANA Business Places (Enhanced Framework) extends beyond basic location management. Each “business place” serves as a virtual location within your company, much like a branch office. These offer to ensure accurate tax calculations depending on certain regions of India.

So for example, if you have offices in both Delhi and Mumbai. Each may have distinct GST (Goods and Services Tax) rates and compliance requirements, so having separate “business places” ensures precise calculations for each location.

  • GST Health Check Apps:

SAP for India localization provides GST health check apps that assess your company’s data before GST transactions and identify any missing information or potential concerns. This reduces the possibility of errors and makes certain that GST processing runs smoothly.
  • Industry-Specific Solutions:

SAP S/4HANA Cloud provides additional capabilities targeted to various industries, such as manufacturing or retail. These add-ons increase services such as e-way bill generating and contract accounting and with the support of the best SAP implementation partner VC ERP, you can streamline operations to meet your specific requirements.

Implementing India Localization in SAP S/4HANA Cloud is a complex process that requires careful planning and execution due to the country’s regulations. So let’s understand some of the implementation considerations for India localisation.

Crucial Considerations for Implementing India Localization in SAP S/4HANA Cloud with VC ERP

It is obvious that navigating the complexities of Indian regulations requires planned execution. SAP Gold Partner VC ERP has a team of experts to guide you through the process and provide ongoing support to keep your planning on track.

Before implementing India localization, there are some crucial considerations that you need to take into account to ensure compliance with tax obligations, it’s important to have accurate and complete master data like GSTINs and HSN/SAC codes.

Companies need to develop a data migration strategy and cleanse and standardize data to meet Indian formatting requirements. Infact, they need to configure their tax engines and reporting formats based on regulations and also utilize localization-specific features for accurate tax calculations.

Any change to a company is not easy for the employees, there needs to be an effective user training and change management program conducted. So take advantage of VC ERP providing in-depth knowledge to all the users under its user training program.

Stay informed about regulatory changes and updates to maintain compliance. Partner with the best SAP implementation partner VC ERP for ongoing support.

Contact us for a free consultation.