Service tax credit on gta

This query is : Resolved

kartik_somu (Querist)
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11 January 2012 We have made payment to GTA for which we will be liable to service tax as reverse charge basis.

We will be utilizing the current credit balance for payment and avail credit for the same.

What accounting entries have to be passed in the books for this?

U S Sharma

U S Sharma (Expert)
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12 January 2012 service tax on GTA can not be paid from input credit balance, it can be paid in cash only

you can avail credit of inward freight, outward freight is not available for input credit.

kartik_somu

kartik_somu (Querist)
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12 January 2012 We have imported software for which we have been asked to remit service tax.

Can we make payment for the same in cash?
what entry will be passed if we can make payment and avail credit of the same?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 For both of these scenarios, the key elements are:

1. **Service Tax on GTA under Reverse Charge Mechanism**
2. **Service Tax on Imported Software**

Let's break them down separately:

---

### **1. Service Tax on GTA under Reverse Charge Mechanism:**

In this case, under reverse charge, you are liable to pay the service tax directly on the freight charges paid to GTA (Goods Transport Agency). However, you **cannot** utilize the input tax credit (ITC) balance to pay this tax; you must pay it in **cash**.

Here's the accounting treatment:

#### **Journal Entries for GTA (Reverse Charge):**

* **When you make the payment to GTA:**

```
Dr. Freight Expense (or Logistics Expense) XXX
Cr. Creditors (GTA) XXX
```

* **When service tax is payable on GTA under Reverse Charge (and needs to be paid in cash):**

```
Dr. Service Tax Payable (on GTA) XXX
Cr. Bank/Cash (for Service Tax Payment) XXX
```

* **For utilization of credit for other inward services (like freight) or other eligible taxes:**

```
Dr. Input Credit Receivable (Service Tax) XXX
Cr. Service Tax Payable (on GTA) XXX
```

### **2. Service Tax on Imported Software:**

When you import software and are required to pay service tax (either because the import involves services or for royalty-type payments), the process is different.

* Service Tax on **imported software** can be paid using **cash**, and it is eligible for input credit (unless the service is not an eligible one).

#### **Accounting Entries for Imported Software:**

* **When the liability for service tax on imported software arises:**

```
Dr. Software Expense (or Intangible Asset, depending on treatment) XXX
Cr. Creditors (for Software Purchase) XXX
```

* **When service tax is due:**

```
Dr. Service Tax on Imported Software (Liability Account) XXX
Cr. Bank/Cash (for Service Tax Payment) XXX
```

* **When you avail credit of the service tax paid on imported software:**

```
Dr. Input Credit Receivable (Service Tax) XXX
Cr. Service Tax on Imported Software (Liability Account) XXX
```

---

### Summary Points:

1. **For GTA reverse charge**, you cannot use the ITC balance to pay the tax; you must pay in cash and can avail the credit of **inward freight** (not outward).

2. **For imported software**, you can pay the service tax in cash and avail the credit for the tax paid, as long as the service is eligible.

Does this make sense? Would you like further clarification on any part?

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