I am Purchasing Travel Insurance Policy from Reliance agent for Rs 100/- and collecting Rs 100/- from my Customer. Below is the details of how i am doing Invoicing in my Book of Accounts
But I am getting Rs 30/- as commission from Insurance company. so at the time of making payment i am paying cash of RS 70/- to my insurance Agent and deducting Rs 30/- from policy amount of RS 100/-.
Should i pass the below JV and pay service Tax .
Reliance Vendor A/c.....Dr 30/- To Insurance Commission A/c..... Cr 26.70/- To Service Tax A/c ..............Cr 3.30/-
Please check the above JV and let me know the correct way of doing the above transaction.
24 July 2025
Thanks for sharing the details! Let's break this down:
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### Situation Summary:
* You collect **Rs.100** from the customer for travel insurance. * You pay **Rs.70** cash to the insurance agent (Reliance vendor). * You get **Rs.30 commission** from the insurance company. * You want to record service tax on the commission received (Rs.30).
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### Key points about **Service Tax on Insurance Commission**:
1. **Commission earned on insurance services** is a **taxable service** under the category of "Insurance Auxiliary Services" or "Commission or Brokerage services."
2. You are **liable to pay service tax on the commission amount received (Rs.30)**, not on the total amount collected (Rs.100).
3. The **service tax rate** applicable (as per 2014 rules) on commission is 10.3% (service tax + cess). (Check if it's 12.36% or 10.3% depending on the period).
* Rs.30 commission received (credit to commission account) * Service tax liability on Rs.30 commission (Rs.3.30) * Reducing vendor payable account by Rs.30
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### Correct approach should be:
Since you pay Rs.70 cash to Reliance vendor, and net Rs.30 commission is your income, your accounts should show:
1. **Record total amount collected from customer:**
``` Debtors A/c Dr 100 To Reliance Vendor (liability) Cr 100 ```
2. **Record payment to vendor:**
``` Reliance Vendor A/c Dr 70 To Cash/Bank Cr 70 ```
3. **Record commission income and service tax liability:**
``` Reliance Vendor A/c Dr 30 (reduce liability to vendor by commission) To Insurance Commission Income Cr 26.70 To Service Tax Payable Cr 3.30 ```
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### Explanation:
* You initially owe Rs.100 to vendor. * You pay Rs.70 in cash. * Vendor owes you commission Rs.30 (so your liability to vendor reduces by Rs.30). * You recognize Rs.26.70 as commission income. * You recognize Rs.3.30 as service tax liability on commission.
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### Important:
* You must **pay service tax on commission amount (Rs.30)** to the government. * File service tax returns accordingly. * The **service tax component is collected and paid by you** as service provider of commission service.
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If you want, I can help prepare a more detailed accounting example or entries specific to your accounting software. Would that help?
CAclubindia
