30 May 2012
ACCOUNTING FOR SERVICE TAX (A) Billing and Receipt from Debtors
1. Raising Invoice upon the customer Sundry Debtors A/c ……. Dr 1,10,300 (By full value of invoice) To Income A/c 1,00,000 (By charges for service provided) To Service Tax Billed A/c 10,300 (By amount of Service Tax charged in the invoice)
2. Receipt of payment from the customer a) Cash/Bank A/c ……. Dr 99,270 TDS A/c (if any) ……. Dr 11,030 To Sundry Debtors A/c 1,10,300 (Amount of service tax component included in receipts and actually payable)
b) Service Tax Billed A/c ……. Dr 10,300 To Service Tax Payable A/c 10,300 (Amount of service tax component included in receipts and actually payable) (B) Entry for CENVAT
3. Purchases of goods/ material for use as input in providing services
Credit on inputs is allowed immediately on purchase even if supplier’s bill is unpaid.
Material A/c ……. Dr 50,000 (Net value of goods) Cenvat Credit Available A/c ……. Dr 5,150
To Sundry Creditors A/c 55,150 4. When capital goods are purchased for providing services
Capital Asset A/c ……. Dr 1,00,000
Cenvat Credit Available A/c ……. Dr 5,150 (50% of Cenvat Credit in year of purchase)
Cenvat Credit Deferred A/c ……. Dr 5,150 (50% of Cenvat Credit)
To Sundry Creditors A/c 1,10,300 (Purchase of capital asset worth Rs. 100000 + Cenvat Rs. 10,300 (10.30%). 50% Cenvat available in year of purchase and balance in forthcoming years)
5. Availment of Cenvat on Capital goods in next year
Cenvat Credit Available A/c ……. Dr 5,150
To Cenvat Credit Deferred A/c 5,150
6. Receipt of inputr service
Credit on input service (eg. Telephone) is available only when payment is made to supplier of input service.
a) When invoice is booked Telephone Expenses A/c ……. Dr 11,030
To Sundry Creditors A/c 11,030 (Entry by full value of bill – Expenses 10000 + Service Tax 1,030)
7. When payment is made to the service provider for expense a) Sundry Creditors A/c ……. Dr 11,030 To Cash/Bank A/c 11,030 b) Cenvat Credit Available A/c ……. Dr 1,030 To Telephone Expenses A/c 1,030 (To the extent of Service tax component included in expenses paid to service provider) (C) Discharging of Tax Liability
8. Payment of service tax to government Service Tax Payable A/c ……. Dr 10,300 To Cenvat Credit Available A/c 10,300 (Discharging liability of Service tax of Rs. 10,300 by utilizing CENVAT credit of Rs. 10,300 (Rs. 5150 on capital goods, Rs. 5150 on inputs. CENVAT credit available account will have a debit balance of Rs. 10,300)
IMPORTANT POINTS : 1. At any point of time, Service Tax Payable A/c will reflect amount payable for the month or quarter as applicable.
2. Service Tax Billed A/c and Sundry Debtors will have a correlation at any point of time on the basis of tax rate. For example if in the above example 25% of the debtors are outstanding , then Debtors A/c would be Rs. 27,575 and Service tax Billed A/c would be Rs. 2,575. To arrive and reconcile debtors vis-à-vis service tax billed , one has to simply compute it as 27,575 X 10.30/110.30 (tax rate/1+tax rate) = 2,575.
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