Sales
Tax-Exclusive
Tax-Exclusive means that the tax is not a part of the price of the product or service. And, it is calculated separately and charged on the subtotal of the transaction.
For example:
If the price of one unit is $100 and the tax is 14% , the Exclusive tax will be added on top of the unit price.
So that would make the total amount calculated as follows
Total amount = (Unit price * tax%) + Unit Price
Tax amount = ($100 * 14%)
Total amount = ($100 * 14%) + $100 = $114
Tax-Inclusive
Tax-Inclusive means that the tax is already included in the unit price of the product or service. And it’s not charged separately.
Let’s take the same numbers from the previous example so you can see the difference.
If the price of one unit is $100 and the tax is 14% , the Inclusive tax means the unit price already includes the tax.
So that would make the net amount calculated as follows
So, Net amount = (Unit Price / ((Unit price * tax%) + Unit Price)) * 100
Net amount = ($100 / 114) * 100 = $87.7
Now that we have the net amount, which the amount before adding the tax, doing a simple calculation like adding the tax percentage (14%) will explain things better. In the end, we will get a $100, which is the original amount that “included” the tax.
The total amount = Net amount + the tax percentage.
So, $87.7 + 14%= $100 (Tax-Inclusive)
Default
The system’s default Tax Type is “Tax-Exclusive“. To be able to change that or add a new Tax, follow these tutorials.