Service tax & tds entry on prepaid expenses

This query is : Resolved 

20 September 2011


Purchase of Antivirus (Computer Expenses) for next 3 years = Rs. 50000 + 5150(ST-10.3%) = 55150 (Bill amt)
TDS dedt @ 10.00% = Rs. 5000 and Paid to Govt on following month.

The payment of Rs. 50150 (55150-5000) to be payable in advance for three years.

Please send the journal entries for service tax Rs. 5150 availed and utilised for curent years and how the expenses can be book in these three years.


Vivek Raju P (Expert)
20 September 2011

Software Purchases 50,000
Service Tax Input Credit A/c 5150
To Vendor 55150
( Initial Entry)

Service Tax A/c 5150
To S Tax Input Credit A/C 5150
( Availment)

Software - Amortisation 1333
To Accumulated Amortisation on Software 1333

(Yearly amortisation)

You may also charge off all the 5k to a single year considering materiality.

CA Pushpendra Gaur (Expert)
26 September 2011

I believe this accounting treatment is not genuine

First of all, as per Income tax act amentment 2008 the software are asset now and required to be categorised as Computers and 60 % depreciation to be claimed and since it is purchase of software it an asset and therefore no TDS to be deducted and even the laibilty of service tax also does not arise in the afore said case.

As per Ind As 38 Intangible Assets and also current AS 26
“Some intangible assets may be contained in or on a physical substance such as a compact disc (in the case of computer software), legal documentation (in the case of a licence or patent) or film. In determining whether an asset that incorporates both intangible and tangible elements should be treated under Ind AS 16 Property, Plant and Equipment or as an intangible asset under this Standard, an entity uses judgement to assess which element is more significant. For example, computer software for a computer-controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as property, plant and equipment. The same applies to the operating system of a computer. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset.”

Therefore it is an asset whether you take as tangible under Computer or Intangible, no service tax is required to be paid for the purchase of asset
and sepreciation to be claimed accordingly

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