Let's start with an e.g. Suppose there has been bill raised on M/s XYZ for providing service i.e. Service Charge Rs. 5000 and Service tax @10.30 (i.e. Rs.515)
Total billed amount Rs.5515
Question :- How it would appear in Books of Accounts on Accrual basis.
and if you are thinking of the following entry :
M/s XYZ Dr. Rs. 5515 TO Service Charges A/c Rs. 5000 To Service Tax Receivable/Payable Rs.515
By doing this, we booked service tax by that amount which we have not received actually.
But as we know service tax is payable on receipt basis and on the actually received amount. And suppose, M/s XYZ pays only Rs. 5000 as full n final settlement. Now we have to calculate Service tax back i.e. assuming service tax is included in Rs. 5000. and service tax comes to be Rs.Rs.467 instead of Rs.515
How this would be treated in books of accounts maintained on accrual basis of accounting.
16 July 2009
payment of service tax & accounting are different things. Following the accrual principal, u need to book the exp as well as s.Tax recoverable although which can't be utilized in that month becz payment has not been made. And subsequently any adjustment is made, then s.tax can be adjusted.
16 July 2009
But if we book with some amount and receive amount different than booked . Like earlier said, We receive Rs.467 against booked amount of Rs. 515, the balance of Rs. 48 would stand in books.
and it would have to be written off to eliminate.
Is there any right way of accounting service tax by making a balance between booking amount as per accrual and paying service tax on cash basis.
17 July 2009
Your query is very genuine one Rajesh as one of my client also faced the same problem. I gave them the following solution hope it will satisfy your query as well:
While booking the income:
M/s XYZ A/c Dr. 5515 To Service Charges 5000 To Service Tax Adjustment 515
This adjustment a/c will be an intermediary account for book adjustments.
When settled for Rs. 5000
Bank A/c Dr. 5000 To M/s XYZ 5000
Service Tax Adjustment A/c Dr. 515 To Service TAx Recoverable A/c 467 To M/s XYZ A/c 48
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