Journal entry
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
14 July 2015
what should be journal entry in case of work contract reverse charge mechanism?
Party A raise invoice as
material 4300
vat 172
labour 4600
service tax 284.28
TOTAL 9356.28
Party B make payment to party A after deducting TDS@1% and Party B has to pay service tax (i.e. 50% in case of reverse charge) of Rs 284.28
Now What should be journal entry in books of PARTY B?
Party A raise invoice as
material 4300
vat 172
labour 4600
service tax 284.28
TOTAL 9356.28
Party B make payment to party A after deducting TDS@1% and Party B has to pay service tax (i.e. 50% in case of reverse charge) of Rs 284.28
Now What should be journal entry in books of PARTY B?
14 July 2015
Record the bill for 9356.28
open a separate account named and styled as "service tax for reverse charge mechanism"
debit the same whenever you deduct the same from the party's bill and credit the same whenever you actually make the payment of the same.
The balance in this account be zero.....
open a separate account named and styled as "service tax for reverse charge mechanism"
debit the same whenever you deduct the same from the party's bill and credit the same whenever you actually make the payment of the same.
The balance in this account be zero.....
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Querist : Anonymous
Querist :
Anonymous
(Querist)
15 July 2015
entry in books of service receiver
expenses a/c dr 9640.56
to tds 93.56
to service tax payable 284.28
to party A 9262.72
Party B 9262.72
To bank 9262.72
Service tax payable a/c dr 284.28
To bank 284.28
(on payment of service tax by Party B in case of reverse charge)
Whether above entry are correct if not please write correct accounting entry?
expenses a/c dr 9640.56
to tds 93.56
to service tax payable 284.28
to party A 9262.72
Party B 9262.72
To bank 9262.72
Service tax payable a/c dr 284.28
To bank 284.28
(on payment of service tax by Party B in case of reverse charge)
Whether above entry are correct if not please write correct accounting entry?
02 August 2024
The reverse charge mechanism (RCM) for service tax, as per Indian GST laws, means that the service recipient (Party B in this case) is responsible for paying the service tax. Below is how to handle the journal entries for Party B, the service recipient, in this scenario.
### **Details:**
- **Invoice from Party A:**
- Material: ₹4,300
- VAT: ₹172
- Labour: ₹4,600
- Service Tax: ₹284.28
- **Total Invoice Amount**: ₹9,356.28
- **TDS Deducted @ 1%**: ₹93.56
- **Service Tax to be Paid under RCM**: ₹284.28 (50% of the service tax as per RCM)
### **Journal Entries in Party B's Books:**
1. **Recording the Invoice and Liability under Reverse Charge Mechanism:**
**Journal Entry:**
```
Date Account Debit Credit
-------------------------------------------------------------
[Date] Material Expense 4,300
Labour Expense 4,600
VAT Input Credit 172
Service Tax Input Credit 142.14 (50% of ₹284.28)
To Party A 9,356.28
```
**Explanation:**
- **Material Expense** and **Labour Expense** (Debits): Record the expenses as per the invoice.
- **VAT Input Credit** (Debit): Record the VAT paid.
- **Service Tax Input Credit** (Debit): Record the input credit for the service tax paid under RCM.
- **Party A** (Credit): Recognize the liability to Party A for the total invoice amount.
2. **Recording the TDS Deducted and Payment to Party A:**
**Journal Entry:**
```
Date Account Debit Credit
-------------------------------------------------------------
[Date] Party A 9,356.28
To TDS Payable 93.56
To Bank 9,262.72
```
**Explanation:**
- **Party A** (Debit): Reduce the liability to Party A by the payment made.
- **TDS Payable** (Credit): Record the TDS deducted.
- **Bank** (Credit): Reflect the payment made to Party A after TDS deduction.
3. **Payment of Service Tax under RCM:**
**Journal Entry:**
```
Date Account Debit Credit
-------------------------------------------------------------
[Date] Service Tax Payable 284.28
To Bank 284.28
```
**Explanation:**
- **Service Tax Payable** (Debit): Clear the liability for service tax under RCM.
- **Bank** (Credit): Reflect the payment made to the government.
### **Summary of Correct Entries:**
1. **Invoice Recording:**
- **Debit** Material Expense ₹4,300
- **Debit** Labour Expense ₹4,600
- **Debit** VAT Input Credit ₹172
- **Debit** Service Tax Input Credit ₹142.14
- **Credit** Party A ₹9,356.28
2. **Payment to Party A:**
- **Debit** Party A ₹9,356.28
- **Credit** TDS Payable ₹93.56
- **Credit** Bank ₹9,262.72
3. **Payment of Service Tax under RCM:**
- **Debit** Service Tax Payable ₹284.28
- **Credit** Bank ₹284.28
These entries should accurately reflect the accounting treatment for the reverse charge mechanism and ensure proper recording of expenses and tax liabilities.
### **Details:**
- **Invoice from Party A:**
- Material: ₹4,300
- VAT: ₹172
- Labour: ₹4,600
- Service Tax: ₹284.28
- **Total Invoice Amount**: ₹9,356.28
- **TDS Deducted @ 1%**: ₹93.56
- **Service Tax to be Paid under RCM**: ₹284.28 (50% of the service tax as per RCM)
### **Journal Entries in Party B's Books:**
1. **Recording the Invoice and Liability under Reverse Charge Mechanism:**
**Journal Entry:**
```
Date Account Debit Credit
-------------------------------------------------------------
[Date] Material Expense 4,300
Labour Expense 4,600
VAT Input Credit 172
Service Tax Input Credit 142.14 (50% of ₹284.28)
To Party A 9,356.28
```
**Explanation:**
- **Material Expense** and **Labour Expense** (Debits): Record the expenses as per the invoice.
- **VAT Input Credit** (Debit): Record the VAT paid.
- **Service Tax Input Credit** (Debit): Record the input credit for the service tax paid under RCM.
- **Party A** (Credit): Recognize the liability to Party A for the total invoice amount.
2. **Recording the TDS Deducted and Payment to Party A:**
**Journal Entry:**
```
Date Account Debit Credit
-------------------------------------------------------------
[Date] Party A 9,356.28
To TDS Payable 93.56
To Bank 9,262.72
```
**Explanation:**
- **Party A** (Debit): Reduce the liability to Party A by the payment made.
- **TDS Payable** (Credit): Record the TDS deducted.
- **Bank** (Credit): Reflect the payment made to Party A after TDS deduction.
3. **Payment of Service Tax under RCM:**
**Journal Entry:**
```
Date Account Debit Credit
-------------------------------------------------------------
[Date] Service Tax Payable 284.28
To Bank 284.28
```
**Explanation:**
- **Service Tax Payable** (Debit): Clear the liability for service tax under RCM.
- **Bank** (Credit): Reflect the payment made to the government.
### **Summary of Correct Entries:**
1. **Invoice Recording:**
- **Debit** Material Expense ₹4,300
- **Debit** Labour Expense ₹4,600
- **Debit** VAT Input Credit ₹172
- **Debit** Service Tax Input Credit ₹142.14
- **Credit** Party A ₹9,356.28
2. **Payment to Party A:**
- **Debit** Party A ₹9,356.28
- **Credit** TDS Payable ₹93.56
- **Credit** Bank ₹9,262.72
3. **Payment of Service Tax under RCM:**
- **Debit** Service Tax Payable ₹284.28
- **Credit** Bank ₹284.28
These entries should accurately reflect the accounting treatment for the reverse charge mechanism and ensure proper recording of expenses and tax liabilities.
04 August 2024
One needs to ensure the proper recording of expenses as well as liabilities
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