Point of taxation

Queries 1219 views 4 replies

Vikas Wadhawan

Service

52 Points Joined October 2008

Friends my company is into real estate broking services wherein we help our customer to book properties through different builders and get commission for our services from the builders. In this transaction our commission is due when the builder receives atleast 20 - 30% of the value of the property from the customer and a builder buyer agreement is done between the builder and customers. This entire thing generally takes 9 - 12 months from the date of booking of the property and therefore we raise invoice to the builder when these events occure and our commisson gets due.

In our financial books we were recognizing the revenue immidiately on the completion of booking from the customer and acceptance of the same by the builder. We were raising invoices after 8 - 12 months from the date of recognizing revenue in the books of accounts (as builders does not accept invoices unless the specified event occurs) and were receiving the payment within 45 - 60 days from the date of the Invoice.

Now in the light of the new rule of Service Tax related to the point of taxation I can not follow the same practice and therefore seek your advise on the following matters:

1. When do we book revenue in our books of accounts (viz. at the time of completion of booking / at the time of invoicing / on receipt of money)?

2. When do we need to pay service tax on the above services?

3. CENVAT credit will continue to be on paid basis?

Please provide me your expert advice on the abovementioned matter.

Thanks in advance for your time and effort

Vik

Replies (4)

U S Sharma

glidor@gmail.com

21068 Points Joined January 2010

1. When do we book revenue in our books of accounts (viz. at the time of completion of booking / at the time of invoicing / on receipt of money)?

- at the time of issue of invoice ( within 14 days u have to issue invoice in case of advance receipt) u r liable for service tax.

2. When do we need to pay service tax on the above services?

- in 5th day of the following month in which u have issued the invoice.

3. CENVAT credit will continue to be on paid basis?

- if you are not interested to avail 10L exemption then u are eligible to set off the service tax charged and payable with your input credit of service tax bills received in relation to taxable output services.

Ankit Kukreja

Student

40 Points Joined April 2011

1. When do we book revenue in our books of accounts (viz. at the time of completion of booking / at the time of invoicing / on receipt of money)?

-Revenue is due to be booked as soon as you raise the invoice, because logically the other person will claim that expenditure and if you do not recognise your income, this may lead to a case of concealment of income.

2. When do we need to pay service tax on the above services?

-You need to charge and collect service tax only when you've crossed the limit of 10L and have obtained your S.T. No., however, if you are charging S.Tax even before crossing the limit(which is permissible), you need to pay it to the govt before/on 5th of the next month in which you've issued the invoice(as S.tax is on accrual basis now).

3. CENVAT credit will continue to be on paid basis?.

-No, cenvat credit can also be taken on accrual basis now, therefore, as soon as you receive an invoice in which S.Tax is charged upon you, you are allowed to Cenvat credit irrespective of the fact that the payment is made or not.

Madhukar N Hiregange

Chartered Accountant

39039 Points Joined September 2008

Cenvat credit can be claimed on accrual basis provided that you pay within 90 days. If not the credit requries tobe reversed.

ANKSS

151 Points Joined October 2008

First of all question is very nicely framed by Vikas..good... and it was very nicely replied by Ankit.

I absolutely agree with Ankit and Mr. Madhukar.

Revenue has to be booked only if it has been accrued unless u follow cash mehod of accounting. As u said commission is due when the builder receives atleast 20 - 30% of the value of the property from the customer and a builder buyer agreement is done between the builder and customers. revenue has to be booked on that date as it is quite logical instead of accruing it when builder accepts the same and paying ST before 9-12 months.

In my opinion Mr. Sharma needs to be more clear whenver he solves querries for others...I personally have drafted many questions on ST, but cud not get any satisfactory answers..