Notification no. 7/2015 dt. 01.03.2015, manpower supply

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Naresh Kr. Saini (Querist)
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28 July 2015 Dear Sir,
After the Notification No. 7/2015 Dated 01.03.2015, how made the entry of Service tax Reverse Mechanism by Services recipient. Please explain with example.

Thanks.

Naresh Kr. Saini

Naresh Kr. Saini (Querist)
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30 July 2015 Dear Expert,
After Notification No. 7/2015 Dated 01.03.2015 in Service Tax, Service Recipient paid 100% Service Tax than what is entry made for Service tax Reverse Machanism, Please Please explain, its urgent.

Thanks & Regards

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2024 **Notification No. 7/2015-Service Tax**, dated 1st March 2015, amended the service tax provisions related to the reverse charge mechanism for manpower supply services. Here’s a detailed explanation of how to account for service tax under the reverse charge mechanism based on this notification:

### **1. Understanding Notification No. 7/2015:**

**Background:**
- **Reverse Charge Mechanism (RCM):** Under this mechanism, the service recipient is responsible for paying the service tax directly to the government instead of the service provider.
- **Manpower Supply:** As per Notification No. 7/2015, the reverse charge applies to the manpower supply services where the service recipient is required to pay 100% of the service tax.

### **2. Accounting Entries for Service Tax under Reverse Charge Mechanism:**

When the reverse charge mechanism is applicable, the service recipient needs to make accounting entries to reflect both the service tax liability and the input credit. Here’s a step-by-step guide:

#### **Example Scenario:**
- **Value of Manpower Supply Service:** ₹1,00,000
- **Service Tax Rate:** 12% (assuming the applicable rate; this may vary based on the rate in force at the time)
- **Total Service Tax Amount:** ₹12,000

**Accounting Entries:**

1. **Recognizing Service Expense and Service Tax Liability:**
- **Service Expense:** Record the total amount payable for the service.
- **Service Tax Payable:** Record the liability for the service tax under reverse charge.

**Journal Entries:**

- **Service Received:**
```
Debit: Manpower Supply Expense Account ₹1,00,000
Debit: Service Tax Input Credit Account (RCM) ₹12,000
Credit: Accounts Payable (Service Provider) ₹1,12,000
```

- **Service Tax Payable:**
```
Debit: Service Tax Input Credit Account ₹12,000
Credit: Service Tax Payable Account ₹12,000
```

2. **Payment of Service Tax to Government:**
- When the service tax is paid to the government, record the payment entry.

**Journal Entry:**
```
Debit: Service Tax Payable Account ₹12,000
Credit: Bank Account ₹12,000
```

### **3. Explanation of Entries:**

- **Expense Recognition:** You debit the Manpower Supply Expense account to reflect the cost of the service.
- **Service Tax Input Credit:** You debit the Service Tax Input Credit account (under reverse charge mechanism) to record the tax that is eligible for input credit.
- **Service Tax Payable:** You credit the Accounts Payable to record the total amount payable to the service provider, including service tax.
- **Payment:** When you pay the service tax to the government, you debit the Service Tax Payable account and credit the Bank Account to show the outflow of cash.

### **4. Important Points:**

- **Input Credit:** The service tax paid under reverse charge is eligible for input credit, which can be utilized for offsetting output tax liability.
- **Documentation:** Ensure that all documentation, including invoices and proof of payment of service tax, is maintained for compliance and audit purposes.
- **Compliance:** Stay updated with changes in tax rates and notifications for accurate accounting.

### **Summary:**

- **Reverse Charge Mechanism:** Under Notification No. 7/2015, the service recipient pays 100% of the service tax for manpower supply services.
- **Accounting Entries:** Record the service expense, service tax liability, and payment in the books of accounts as outlined.
- **Input Credit:** The service tax paid is eligible for input credit.

By following these accounting procedures, you can ensure compliance with the reverse charge mechanism and accurately reflect service tax transactions in your financial records.

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