Accounting Treatment of Service Tax under Reverse Charge Mechanism

CA Dileep Surya Kumar 
on 20 November 2012

Accounting Treatment of Service tax and Cenvat Credit under New Service tax regime

 

Note: The following are indicative accounting entries on the assumption that service receiver/manufacturer is eligible for taking Cenvat credit and service is an expense.

 

This article provides guidance on accounting treatment for service tax and Cenvat credit in the case of full / partial reverse charge mechanism.

 

Note that incase of reverse charge the service receiver can take Cenvat credit of his portion of service tax only after payment to the government. Hence Cenvat differed till payment.

 

Example:

 

1.Service -Supply of Manpower service

2. Value of Services provided by an Individual ‘X’- 10,000

3. Service tax rate: Basic-12%, Ed.cess-2%, SHEC-1%

4. Service tax -service provider-25%-

5. Service tax -service Receiver ‘XYZ Ltd’-75%

 

Accounting Entries – Service Receiver Books

 

1. At the time of payment to the service provider:

 

Expenses Overheads A/c –Debit- 1,00,000

Service tax input Credit (ST) A/c- Debit- 300

Service tax input Credit (Ed.cess) A/c- Debit- 6

Service tax input Credit (SHEC) A/c- Debit- 3

Service tax Differed input Credit (ST) A/c- Debit- 900

Service tax Differed input Credit (Ed.cess) A/c- Debit- 18

Service tax Differed input Credit (SHEC) A/c- Debit- 9

 

Bank A/c –Credit- 10,309       

Service tax Payable (ST) A/c- Credit- 900

Service tax Payable (Ed.cess) A/c- Credit- 18

Service tax Payable (SHEC) A/c- Credit-  9

 

2. At the time of Payment of Service tax to the Government

 

A) Service tax Payable (ST) A/c- Debit- 900

Service tax Payable (Ed.cess) A/c- Debit- 18

Service tax Payable (SHEC) A/c- Debit-  9

 

Bank A/c –Credit- 927

 

B) Service tax eligible Cenvat

Service tax input Credit (ST) A/c- Debit- 900

Service tax input Credit (Ed.cess) A/c- Debit- 18

Service tax input Credit (SHEC) A/c- Debit- 9

           

Service tax Differed input Credit (ST) A/c- Credit- 900

Service tax Differed input Credit (Ed.cess) A/c- Credit- 18

Service tax Differed input Credit (SHEC) A/c- Credit- 99

 

I hope this is useful to you.

 

Regards

Dileep Surya Kumar

 

Published in Service Tax
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