Accounting entries-as-9

Firstly at the time of registration as the bill is raised you have to pass an entry 

Debtor A/c Dr

To Type of service-1200000

To stax payable

Now, stax would be 1200000*10.3% and if invoice is inclusive of stax then stax would be 1200000*103./110.3

With the recent amendment in stax rules stax liability would rise at the time of raising of bill.So you have to pay stax at the point of raising of bill

Entry would be :stax payable Dr

                                To bank A/c

That means If i Received the Rs. 5000/- on registration and i have to pay service tax on 12 lacs which results in to cash shortage???

Dear Madam thanks for the reply,

Is there any way out to reduce the Service tax liability. I means Can we apply AS-9 and say that revnue is recognised to the extent amount recd???? Please do reply and oblige

No you cant do that you have to follow the service tax rules.

well rajesh, the service tax liability can be deferred by raising the bill in installments as per the payment terms. This way the payment received can be synchronised with the bill raised. There is no compulsion to raise a bill on annual basis. The bill can be issued on monthly or quarterly basis as and when payment becomes due.

Rajesh, new Point of Taxation  rules will apply to your case.

 Sunil is correct. You can escape from all of a sudden tax liability by issuing bills in installments.

However the agreement should be carefully drafted and it is advisable to mention this mechanism of installment in the agreement, as it is given that ,  If Bills are not issued within 14 days of completion of service, the tax liability will arise on the day of completion of service itself and you will be penalised for not paying the tax on 6th of next month.

It will become difficult for you to prove in absence of a specific agreement that whether the service is completed with the inception of agreement or it is gradually completed over the period of time,