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How to treat advance received but is an expense adjustable

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26 February 2017 Dear All,
I run a company which deals in GPS Trackers. We provide Hardware bundled with Service to our clients.
Our Bill is mostly like
GPS Tracker x1pc x 10,000 INR + VAT

In actual this includes hardware cost and rent advance for 5 years since it has become a market trend that we provide hardware with free service for 5 years.

Lets assume we buy hardware for 4000 now our profit becomes 6000 because that is advance rent but still we have to pay it to the telecom operator over next 5 years + we have to pay server charges assuming our expense over next 5 years to be Rs.4500 our actual profit is only Rs.1500

How do you suggest we post it in our books of account ?
How should an actual invoice be made, should we split the components in Invoice into 2 parts i.e. Hardware 4000+VAT & Item 2 as Adjustable Security Deposit Rs.6000 ?

We have to pay Airtel @ Rs. 50 per month for next 5 years but if we show 6000 profit we pay 30% tax on it.

Please let me know how we can tackle this situation.

26 February 2017 Yes the invoice has to be raised in two parts.
1 Hardware 4000+VAT.
2 Rent advance 6000+service tax.
Adjust the rental advance 1200 yearly.

26 February 2017 Thank you for the reply. But if we make an invoice component Advance Rent will it not be treated as total profit in current year since the expenses are spread over 5 years.




26 February 2017 It will not be treated as total profit in the current year, book it under advances and take only 1200 to revenue every year.

26 February 2017 Our product sells through dealer distributor network who only have Vat number in this case how will they bill rent advance further since it's a service tax item.
Thanks in advance

26 February 2017 They have to register under service tax and bill the rental advance under service tax.

26 February 2017 But in our case our dealers are various car accessory shops and they would rather not sell the product than register for Service tax. Can we bill it as a recharge card worth 6000 which includes seervice tax just like prepaid recharge cards provided by telecom companies.

26 February 2017 But in our case our dealers are various car accessory shops and they would rather not sell the product than register for Service tax. Can we bill it as a recharge card worth 6000 which includes seervice tax just like prepaid recharge cards provided by telecom companies.




26 February 2017 Yes you can do that way/

26 February 2017 Thank you for the very good advise.

26 February 2017 You are welcome.......................

28 February 2017 Dear Sir,
So now we are planning to roll our our product with below mentioned Invoice :
Item 1: GPS Tracker 1pc x 3999 + VAT
Item 2: Recharge Card 1pc x 4999 Incl 15% Service Tax

Note:
a. The selling price of recharge card will stay the same for the end customer for which we are paying the full service tax it will only goto C&F then distributor then dealer then customer at the same price i.e.4999 incl serv tax
b. The price of hardware will keep increasing adding the profit margin of the dealer network.


I have some queries regarding this :
1. How can we make single invoice for this
2. Since this card is like a prepaid card similar to the one provided by Airtel/Vodafone recharge card which includes service tax, How will my C&F , Distributor, Dealer bill this since none of them has a service tax number but if I look at the dealer network of mobile operators I dont htink even a single of them has a service tax number since you can find recharge cards even at Pan walas to Small Stationary shops.

A help in invoicing & legalities in this area would be highly appreciated, since our distributors want to know how to bill this recharge card.

Thanks in advance.




28 February 2017 Distributors are exempted from service tax hence no need of service tax No.
The services of selling agent or a distributor of SIM cards or recharge coupon vouchers have been exempted from service tax vide entry No. 29 in Notification 25/2012-S.T., dated 20.06.2012.

28 February 2017 Dear sir can you please share any section details which clarifies exemption of dealers and distributors in this case.
Thanks in advance

28 February 2017 I have given the mega exemption notification of service tax, which exempts the services from service tax. It is only negative list and Mega exemption notification exempts services from service tax. See sl No. 29 of link provided.
http://taxguru.in/service-tax/updated-mega-exemption-notification-service-tax.html




28 February 2017 Okay so now the distributors want to know that this recharge voucher sale is to be booked under which account head ? Their CA is saying that most of the mobile recharge trade happens in cash since there are low margins and dealers distributors avoid hassle of putting this in books.

28 February 2017 Such sale not to be booked under sales ac as they are only commission agents. Only commission income has to be accounted.



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