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Sometimes people have good idea about the taxation they know very well the provisions of tax and effectively compute the tax liability monthly/quarterly/half-yearly or yearly basis as the case may be. But at the time of making journal entries for such tax liabilities or payments they gets confused. This article through an light on making journal entries on these aspects. Let’s start:-

I. Value Added Tax

The organizations engaged in Sale and purchase transactions have to pay Vat liability. When they purchase material Vat is paid on purchases and when they sell material Vat is collected on material.

Vat paid on purchase of material-Input

Vat paid on Sale of Material-Output

Output amount is adjusted with the input and the balance is paid to the department. Entries to be made are:-

At the time of Purchase of Material

Purchase Dr………….

Vat Input Dr……………

To Creditors……………………

At the time of Sale of Material

Debtors Dr……………….

To Sales………………………….

To Vat Output…………………..

At the time of Adjustment

Vat Output Dr………………..

To Vat Input……………………………..

To Vat Payable (If Output>Input)………………………………

At the time of Payment

Vat Payable Dr…………………………..

To Cash/bank

II.  Service Tax

Organizations engaged in providing services are supposed to pay service tax and following entries are made:-

When services are received:-

Expenses Dr………………………

Service tax Input Dr………………

To Party

When services are provided

Debtors Dr……………………

To Revenue………………………

To Service tax Output……………

At the time of Adjustment

Service tax Output Dr…………….

To Service Tax Input…………………….

To Service tax Payable……………………….

At the time of Payment

Service tax Payable Dr………………….

To Cash/bank…………………………………….

As you can analyze the entries for Vat and Service tax are almost same. Entries for excise duties too are on same parlance with a minor difference. Let’s check out what are those differences.

III. Excise Duty

At the time of Purchase

Purchase Dr……………..

Central Excise Input Dr………..

Education Cess Input Dr……………….

Secondary and Higher Education Cess Input Dr.

To Creditors

At the time of Sale

Debtors Dr…………….

Manufacturing Duty (Basic+Education Cess+Secondary & higher education cess) Dr.

To Central Excise Output …………………..

To Education Cess Output…………………..

To Secondary & higher education cess Output……………

To Sales (Including excise duty amount)…………………………………………………..

As per the guidance note of ICAI excise duty is added in Sales amount and in the financial statements shown by way of deduction from Sales figure. So corresponding figure of excise duty is recorded by name of manufacturing duty to nullify the impacts of duplication in records.

IV. Tax Deducted At Source

While making payments TDS is deducted as per the applicable provisions and such deducted tds is deposited with the department.

At the time of deducting TDS

Expenses Dr……………

To TDS Payable………………….

To Party………………………………

At the time of deposit of amount of TDS

TDS Payable Dr………………………

To Cash/Bank………………………………………

In Similar way entries for TDS deducted on income to be recorded.

At the time of booking of income

Party Dr…………………….

TDS deducted………………………

To Revenue receipts……………………………….

At the time of receipt of Income

Bank/Cash Dr………………………..

To Party……………………………………..

Hope now you get the idea of making journal entries of tax related transactions. Please comment on the article if you like or not. Thanks.


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Category Income Tax, Other Articles by - CA Parul Saxena 



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