diff --git a/accounts/doctype/sales_invoice/test_sales_invoice.py b/accounts/doctype/sales_invoice/test_sales_invoice.py
index 46a3f26..8630890 100644
--- a/accounts/doctype/sales_invoice/test_sales_invoice.py
+++ b/accounts/doctype/sales_invoice/test_sales_invoice.py
@@ -192,7 +192,57 @@
 				
 		self.assertEquals(si.doc.grand_total, 1500)
 		self.assertEquals(si.doc.grand_total_export, 1500)
-				
+
+	def test_flat_discount_gl_entry(self):
+		si = webnotes.bean(copy=test_records[3])
+		si.doc.flat_discount = 104.95
+		si.doclist.append({
+			"doctype": "Sales Taxes and Charges",
+			"parentfield": "other_charges",
+			"charge_type": "On Previous Row Amount",
+			"account_head": "_Test Account Service Tax - _TC",
+			"cost_center": "_Test Cost Center - _TC",
+			"description": "Service Tax",
+			"rate": 10,
+			"row_id": 8,
+			"idx": 9
+		})
+		si.insert()
+		si.submit()
+
+		gl_entries = webnotes.conn.sql("""select account, debit, credit
+			from `tabGL Entry` where voucher_type='Sales Invoice' and voucher_no=%s
+			order by account asc""", si.doc.name, as_dict=1)
+
+		self.assertTrue(gl_entries)
+
+		expected_values = sorted([
+			[si.doc.debit_to, 1500, 0.0],
+			[test_records[3][1]["income_account"], 0.0, 1163.45],
+			[test_records[3][3]["account_head"], 0.0, 130.31],
+			[test_records[3][4]["account_head"], 0.0, 2.61],
+			[test_records[3][5]["account_head"], 0.0, 1.31],
+			[test_records[3][6]["account_head"], 0.0, 25.96],
+			[test_records[3][7]["account_head"], 0.0, 145.43],
+			[test_records[3][8]["account_head"], 0.0, 116.35],
+			[test_records[3][9]["account_head"], 0.0, 100],
+			[test_records[3][10]["account_head"], 168.54, 0.0],
+			["_Test Account Service Tax - _TC", 16.88, 0.0],
+		])
+
+		for i, gle in enumerate(gl_entries):
+			self.assertEquals(expected_values[i][0], gle.account)
+			self.assertEquals(expected_values[i][1], gle.debit)
+			self.assertEquals(expected_values[i][2], gle.credit)
+
+		# cancel
+		si.cancel()
+
+		gle = webnotes.conn.sql("""select * from `tabGL Entry` 
+			where voucher_type='Sales Invoice' and voucher_no=%s""", si.doc.name)
+
+		self.assertFalse(gle)
+
 	def test_inclusive_rate_validations(self):
 		si = webnotes.bean(copy=test_records[2])
 		for i, tax in enumerate(si.doclist.get({"parentfield": "other_charges"})):
@@ -418,7 +468,6 @@
 			from `tabGL Entry` where voucher_type='Sales Invoice' and voucher_no=%s
 			order by account asc, debit asc""", si.doc.name, as_dict=1)
 		self.assertTrue(gl_entries)
-		# print gl_entries
 		
 		stock_in_hand = webnotes.conn.get_value("Account", {"master_name": "_Test Warehouse - _TC"})
 				
diff --git a/buying/doctype/purchase_common/purchase_common.js b/buying/doctype/purchase_common/purchase_common.js
index 9661f6e..92d127b 100644
--- a/buying/doctype/purchase_common/purchase_common.js
+++ b/buying/doctype/purchase_common/purchase_common.js
@@ -360,6 +360,14 @@
 				});
 			}
 		}
+
+		if(this.frm.tax_doclist.length) {
+			if(!wn.meta.get_docfield(this.frm.tax_doclist[0].doctype, "tax_amount_after_flat_discount", this.frm.doctype)) {
+				$.each(this.frm.tax_doclist, function(i, tax) {
+					delete tax["tax_amount_after_flat_discount"];
+				});
+			}
+		}
 	},
 	
 	calculate_outstanding_amount: function() {
diff --git a/controllers/accounts_controller.py b/controllers/accounts_controller.py
index 41d4859..bcb50da 100644
--- a/controllers/accounts_controller.py
+++ b/controllers/accounts_controller.py
@@ -227,11 +227,11 @@
 						"charge_type": tax.charge_type,
 					}, raise_exception=True)
 			elif tax.charge_type == "On Previous Row Amount" and \
-					not cint(self.tax_doclist[tax.row_id - 1].included_in_print_rate):
+					not cint(self.tax_doclist[cint(tax.row_id) - 1].included_in_print_rate):
 				# referred row should also be inclusive
 				_on_previous_row_error(tax.row_id)
 			elif tax.charge_type == "On Previous Row Total" and \
-					not all([cint(t.included_in_print_rate) for t in self.tax_doclist[:tax.row_id - 1]]):
+					not all([cint(t.included_in_print_rate) for t in self.tax_doclist[:cint(tax.row_id) - 1]]):
 				# all rows about the reffered tax should be inclusive
 				_on_previous_row_error("1 - %d" % (tax.row_id,))
 				
@@ -249,7 +249,7 @@
 
 				# Adjust divisional loss to the last item
 				if tax.charge_type == "Actual":
-					actual_tax_dict[tax.idx] -= current_tax_amount;
+					actual_tax_dict[tax.idx] -= current_tax_amount
 					if n == len(self.item_doclist) - 1:
 						current_tax_amount += actual_tax_dict[tax.idx]
 				
@@ -283,24 +283,29 @@
 					tax.grand_total_for_current_item = \
 						flt(self.tax_doclist[i-1].grand_total_for_current_item + 
 							current_tax_amount, self.precision("total", tax))
-
 				
 				# in tax.total, accumulate grand total of each item
 				tax.total += tax.grand_total_for_current_item
 
 				# set precision in the last item iteration
 				if n == len(self.item_doclist) - 1:
-					tax.total = flt(tax.total, self.precision("total", tax))
-					tax.tax_amount = flt(tax.tax_amount, self.precision("tax_amount", tax))
-					tax.tax_amount_after_flat_discount = flt(tax.tax_amount_after_flat_discount, 
-						self.precision("tax_amount", tax))
+					self.round_off_totals(tax)
 
-					# adjust discount loss in last tax iteration
+					# adjust flat discount loss in last tax iteration
 					if i == (len(self.tax_doclist) - 1) and self.flat_discount_applied:
-						flat_discount_loss = self.doc.grand_total - self.doc.flat_discount - tax.total
-						tax.tax_amount_after_flat_discount = flt(tax.tax_amount_after_flat_discount + 
-							flat_discount_loss, self.precision("tax_amount", tax))
-						tax.total = flt(tax.total + flat_discount_loss, self.precision("total", tax))
+						self.adjust_flat_discount_loss(tax)
+
+	def round_off_totals(self, tax):
+		tax.total = flt(tax.total, self.precision("total", tax))
+		tax.tax_amount = flt(tax.tax_amount, self.precision("tax_amount", tax))
+		tax.tax_amount_after_flat_discount = flt(tax.tax_amount_after_flat_discount, 
+			self.precision("tax_amount", tax))
+
+	def adjust_flat_discount_loss(self, tax):
+		flat_discount_loss = self.doc.grand_total - self.doc.flat_discount - tax.total
+		tax.tax_amount_after_flat_discount = flt(tax.tax_amount_after_flat_discount + 
+			flat_discount_loss, self.precision("tax_amount", tax))
+		tax.total = flt(tax.total + flat_discount_loss, self.precision("total", tax))
 
 	def get_current_tax_amount(self, item, tax, item_tax_map):
 		tax_rate = self._get_tax_rate(tax, item_tax_map)
diff --git a/public/js/transaction.js b/public/js/transaction.js
index f06fc6b..542a1c1 100644
--- a/public/js/transaction.js
+++ b/public/js/transaction.js
@@ -516,7 +516,7 @@
 		this.validate_conversion_rate();
 		this.frm.item_doclist = this.get_item_doclist();
 		this.frm.tax_doclist = this.get_tax_doclist();
-		
+
 		this.calculate_item_values();
 		this.initialize_taxes();
 		this.determine_exclusive_rate && this.determine_exclusive_rate();
@@ -533,12 +533,11 @@
 
 		$.each(this.frm.tax_doclist, function(i, tax) {
 			tax.item_wise_tax_detail = {};
-			tax_fields = ["total", "tax_amount_for_current_item", "grand_total_for_current_item",
+			tax_fields = ["total", "tax_amount_after_flat_discount", 
+				"tax_amount_for_current_item", "grand_total_for_current_item",
 				"tax_fraction_for_current_item", "grand_total_fraction_for_current_item"]
 
-			if (me.flat_discount_applied)
-				tax_fields.push("tax_amount_after_flat_discount");
-			else
+			if (!me.flat_discount_applied)
 				tax_fields.push("tax_amount");
 
 			$.each(tax_fields, function(i, fieldname) { tax[fieldname] = 0.0 });
@@ -551,34 +550,41 @@
 	
 	calculate_taxes: function() {
 		var me = this;
+		var actual_tax_dict = {};
 		
+		// maintain actual tax rate based on idx
+		$.each(this.frm.tax_doclist, function(i, tax) {
+			if (tax.charge_type == "Actual") {
+				actual_tax_dict[tax.idx] = flt(tax.rate);
+			}
+		});
+
 		$.each(this.frm.item_doclist, function(n, item) {
 			var item_tax_map = me._load_item_tax_rate(item.item_tax_rate);
-			
+
 			$.each(me.frm.tax_doclist, function(i, tax) {
 				// tax_amount represents the amount of tax for the current step
 				var current_tax_amount = me.get_current_tax_amount(item, tax, item_tax_map);
 
-				me.set_item_tax_amount && me.set_item_tax_amount(item, tax, current_tax_amount);
-				
-				// case when net total is 0 but there is an actual type charge
-				// in this case add the actual amount to tax.tax_amount
-				// and tax.grand_total_for_current_item for the first such iteration
-				if(tax.charge_type == "Actual" && 
-					!(current_tax_amount || me.frm.doc.net_total || tax.tax_amount)) {
-						var zero_net_total_adjustment = flt(tax.rate, precision("tax_amount", tax));
-						current_tax_amount += zero_net_total_adjustment;
+				// Adjust divisional loss to the last item
+				if (tax.charge_type == "Actual") {
+					actual_tax_dict[tax.idx] -= current_tax_amount;
+					if (n == me.frm.item_doclist.length - 1) {
+						current_tax_amount += actual_tax_dict[tax.idx]
 					}
-				
+				}
+
+				me.set_item_tax_amount && me.set_item_tax_amount(item, tax, current_tax_amount);
+
 				// store tax_amount for current item as it will be used for
 				// charge type = 'On Previous Row Amount'
 				tax.tax_amount_for_current_item = current_tax_amount;
 				
 				// accumulate tax amount into tax.tax_amount
-				if (me.flat_discount_applied)
-					tax.tax_amount_after_flat_discount += current_tax_amount;
-				else
+				if (!me.flat_discount_applied)
 					tax.tax_amount += current_tax_amount;
+
+				tax.tax_amount_after_flat_discount += current_tax_amount;
 				
 				// for buying
 				if(tax.category) {
@@ -603,9 +609,32 @@
 				
 				// in tax.total, accumulate grand total for each item
 				tax.total += tax.grand_total_for_current_item;
+
+				// set precision in the last item iteration
+				if (n == me.frm.item_doclist.length - 1) {
+					me.round_off_totals(tax);
+
+					// adjust flat discount loss in last tax iteration
+					if ((i == me.frm.tax_doclist.length - 1) && me.flat_discount_applied)
+						me.adjust_flat_discount_loss(tax);
+				}
 			});
 		});
 	},
+
+	round_off_totals: function(tax) {
+		tax.total = flt(tax.total, precision("total", tax));
+		tax.tax_amount = flt(tax.tax_amount, precision("tax_amount", tax));
+		tax.tax_amount_after_flat_discount = flt(tax.tax_amount_after_flat_discount, 
+			precision("tax_amount", tax));
+	},
+
+	adjust_flat_discount_loss: function(tax) {
+		var flat_discount_loss = this.frm.doc.grand_total - this.frm.doc.flat_discount - tax.total;
+		tax.tax_amount_after_flat_discount = flt(tax.tax_amount_after_flat_discount + 
+			flat_discount_loss, precision("tax_amount", tax));
+		tax.total = flt(tax.total + flat_discount_loss, precision("total", tax));
+	},
 	
 	get_current_tax_amount: function(item, tax, item_tax_map) {
 		var tax_rate = this._get_tax_rate(tax, item_tax_map);
diff --git a/selling/sales_common.js b/selling/sales_common.js
index d8fdb70..91ec01d 100644
--- a/selling/sales_common.js
+++ b/selling/sales_common.js
@@ -353,7 +353,7 @@
 				item.amount = flt(
 					(item.export_amount * me.frm.doc.conversion_rate) / (1 + cumulated_tax_fraction),
 					precision("amount", item));
-					
+
 				item.basic_rate = flt(item.amount / item.qty, precision("basic_rate", item));
 				
 				if(item.adj_rate == 100) {
@@ -393,20 +393,19 @@
 	
 	calculate_net_total: function() {
 		var me = this;
-
 		this.frm.doc.net_total = this.frm.doc.net_total_export = 0.0;
+
 		$.each(this.frm.item_doclist, function(i, item) {
 			me.frm.doc.net_total += item.amount;
 			me.frm.doc.net_total_export += item.export_amount;
 		});
-		
+
 		wn.model.round_floats_in(this.frm.doc, ["net_total", "net_total_export"]);
 	},
 	
 	calculate_totals: function() {
 		var me = this;
 		var tax_count = this.frm.tax_doclist.length;
-		this.total_tax_excluding_actual = 0.0;
 
 		this.frm.doc.grand_total = flt(
 			tax_count ? this.frm.tax_doclist[tax_count - 1].total : this.frm.doc.net_total,
@@ -416,40 +415,54 @@
 			
 		this.frm.doc.other_charges_total = flt(this.frm.doc.grand_total - this.frm.doc.net_total,
 			precision("other_charges_total"));
-		this.frm.doc.other_charges_total_export = flt(
-			this.frm.doc.grand_total_export - this.frm.doc.net_total_export + this.frm.doc.flat_discount,
+		this.frm.doc.other_charges_total_export = flt(this.frm.doc.grand_total_export - 
+			this.frm.doc.net_total_export + this.frm.doc.flat_discount,
 			precision("other_charges_total_export"));
 			
 		this.frm.doc.rounded_total = Math.round(this.frm.doc.grand_total);
 		this.frm.doc.rounded_total_export = Math.round(this.frm.doc.grand_total_export);
-
-		// calculate total amount for flat discount
-		$.each(this.frm.tax_doclist, function(i, tax) {
-			if (tax.charge_type != "Actual") {
-				me.total_tax_excluding_actual += flt(tax.tax_amount, precision("tax_amount", tax));
-			}
-		});
-
-		this.total_amount_for_flat_discount = flt(this.frm.doc.net_total + 
-			this.total_tax_excluding_actual, precision("grand_total"));
 	},
 
 	apply_flat_discount: function() {
 		var me = this;
 		var distributed_amount = 0.0;
 
-		if (this.frm.doc.flat_discount && this.total_amount_for_flat_discount) {
+		if (this.frm.doc.flat_discount) {
+			var total_amount_for_flat_discount = this.get_flat_discountable_amount();
 			// calculate item amount after flat discount
 			$.each(this.frm.item_doclist, function(i, item) {
-				distributed_amount = flt(me.frm.doc.flat_discount * item.amount / me.total_amount_for_flat_discount,
-					precision("amount", item));
-				item.amount -= distributed_amount;
+				distributed_amount = me.frm.doc.flat_discount * item.amount / total_amount_for_flat_discount;
+				item.amount = flt(item.amount - distributed_amount, precision("amount", item));
 			});
 
 			this.flat_discount_applied = true;
 			this.calculate_taxes_and_totals();
 		}
 	},
+
+	get_flat_discountable_amount: function() {
+		var me = this;
+		var total_actual_tax = 0.0;
+		var actual_taxes_dict = {};
+
+		$.each(this.frm.tax_doclist, function(i, tax) {
+			if (tax.charge_type == "Actual")
+				actual_taxes_dict[tax.idx] = tax.tax_amount;
+			else if (actual_taxes_dict[tax.row_id] !== null) {
+				actual_tax_amount = flt(actual_taxes_dict[tax.row_id]) * flt(tax.rate) / 100;
+				actual_taxes_dict[tax.idx] = actual_tax_amount;
+			}
+		});
+
+		$.each(actual_taxes_dict, function(key, value) {
+			if (value)
+				total_actual_tax += value;
+		});
+
+		total_amount_for_flat_discount = flt(this.frm.doc.grand_total - total_actual_tax, 
+			precision("grand_total"));
+		return total_amount_for_flat_discount;
+	},
 	
 	calculate_outstanding_amount: function() {
 		// NOTE: 
diff --git a/stock/doctype/item/item.js b/stock/doctype/item/item.js
index c9aa75e..6a1a7ef 100644
--- a/stock/doctype/item/item.js
+++ b/stock/doctype/item/item.js
@@ -97,7 +97,8 @@
 cur_frm.fields_dict['item_tax'].grid.get_field("tax_type").get_query = function(doc, cdt, cdn) {
 	return{
 		filters:[
-			['Account', 'account_type', 'in', 'Tax, Chargeable'],
+			['Account', 'account_type', 'in',
+				'Tax, Chargeable, Income Account, Expense Account'],
 			['Account', 'docstatus', '!=', 2]
 		]
 	}
diff --git a/stock/doctype/item/item.py b/stock/doctype/item/item.py
index b5884b4..0c4d5dd 100644
--- a/stock/doctype/item/item.py
+++ b/stock/doctype/item/item.py
@@ -154,8 +154,8 @@
 			if d.tax_type:
 				account_type = webnotes.conn.get_value("Account", d.tax_type, "account_type")
 				
-				if account_type not in ['Tax', 'Chargeable']:
-					msgprint("'%s' is not Tax / Chargeable Account" % d.tax_type, raise_exception=1)
+				if account_type not in ['Tax', 'Chargeable', 'Income Account', 'Expense Account']:
+					msgprint("'%s' is not Tax / Chargeable / Income / Expense Account" % d.tax_type, raise_exception=1)
 				else:
 					if d.tax_type in check_list:
 						msgprint("Rate is entered twice for: '%s'" % d.tax_type, raise_exception=1)