Treatment of input service tax

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Querist : Anonymous

Querist : Anonymous (Querist)

12 April 2012 There are Rs. 85000/- of Service tax
Payable and input service tax of Rs. 8000/- in F.Y 2010-2011.

Service tax payable Rs. 85000/- shown in the balance sheet but neither input service tax credit of Rs. 8000/- set off against service tax payable nor shown in balance sheet.

Now service tax payment made of Rs. 77000/- after set off input service tax of Rs. 8000/- in 2011-2012. Hence Balance Shown in Service tax Payable A/c is Rs. 8000/- in F.Y 2011-2012.

How to treat input service tax of Rs. 8000/- in F.Y. 2011-2012

Please Reply soon....

BHARATH KOTHARI

BHARATH KOTHARI (Expert)
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15 April 2012 You Have Might have missed entry in last year please go back if possible pass the

Service TAx Payable a/c Dr.
To Input Credit on service Tax

then it will show the proper balance in balance sheet also

Querist : Anonymous

Querist : Anonymous (Querist)

16 April 2012 It can't possible due to in income tax Return Servive tax payable show amount of Rs. 85000, Hence now if pass above entry then balance sheet will change.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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02 August 2025 Here’s the correct approach to handle **Input Service Tax Credit (ST credit)** and **Service Tax Payable** in your books and financial statements:

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### Situation Recap:

* Service Tax Payable for FY 2010-11: Rs. 85,000 (shown in Balance Sheet)
* Input Service Tax Credit (Input ST): Rs. 8,000 (not set off, not shown)
* Payment made in FY 2011-12: Rs. 77,000 after adjusting input credit of Rs. 8,000
* Balance shown as Service Tax Payable in FY 2011-12 is Rs. 8,000

---

### What should have happened?

1. **At the end of FY 2010-11:**

* You should have **netted off input service tax credit against service tax payable**, because under service tax law, input credit is allowed to be adjusted against output tax liability.

* Correct entry should have been:

```
Service Tax Payable A/c Dr. 8,000
To Input Service Tax Credit A/c 8,000
```

* This reduces the **Service Tax Payable** to Rs. 77,000 and reflects input credit properly.

* But since you did not pass this entry, your books show Rs. 85,000 payable and input credit of Rs. 8,000 unaccounted.

---

2. **At the time of payment in FY 2011-12:**

* You paid Rs. 77,000 (which is Rs. 85,000 - Rs. 8,000 credit) but did not adjust the earlier balances properly.

* So now your balance sheet wrongly shows a payable of Rs. 8,000 as well as input credit of Rs. 8,000 not accounted.

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### How to rectify now?

* Since the **Income Tax Return for FY 2010-11 shows Rs. 85,000 as payable**, you cannot change that now.

* But for **proper accounting and financial statement presentation**, you should:

* Pass the following entry in FY 2011-12 to adjust input credit:

```
Service Tax Payable A/c Dr. 8,000
To Input Service Tax Credit A/c 8,000
```

* This will reduce the Service Tax Payable ledger balance to zero and clear input credit.

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### Financial statement effect:

* This adjustment will **reduce liability** and reflect input credit properly.

* It will not affect your tax return (since you cannot revise it) but will **give a true and fair view** in your current financials.

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### Summary:

| Issue | Treatment |
| ---------------------------------------------- | ------------------------------------------------ |
| Input service tax credit not set off last year | Adjust in current year books as above entry |
| Service tax payable shown fully last year | Cannot change Income Tax Return; adjust in books |
| Payment in current year includes input credit | Pass journal to clear payable and input credit |

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If you want, I can help you draft the exact journal entries or explain the disclosure in financial statements. Would you like that?

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