Accounting of Service Tax on accrual basis

This query is : Resolved

Rajesh (Querist)
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16 July 2009 Dear Sir

Let's start with an e.g. Suppose there has been bill raised on M/s XYZ for providing service i.e. Service Charge Rs. 5000 and Service tax @10.30 (i.e. Rs.515)

Total billed amount Rs.5515

Question :- How it would appear in Books of Accounts on Accrual basis.

and if you are thinking of the following entry :

M/s XYZ Dr. Rs. 5515
TO Service Charges A/c Rs. 5000
To Service Tax Receivable/Payable Rs.515

By doing this, we booked service tax by that amount which we have not received actually.

But as we know service tax is payable on receipt basis and on the actually received amount. And suppose, M/s XYZ pays only Rs. 5000 as full n final settlement. Now we have to calculate Service tax back i.e. assuming service tax is included in Rs. 5000. and service tax comes to be Rs.Rs.467 instead of Rs.515

How this would be treated in books of accounts maintained on accrual basis of accounting.

Pls correct me.

Thanks in advance..

Raj

Jitender

Jitender (Expert)
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16 July 2009 payment of service tax & accounting are different things. Following the accrual principal, u need to book the exp as well as s.Tax recoverable although which can't be utilized in that month becz payment has not been made. And subsequently any adjustment is made, then s.tax can be adjusted.

Rajesh

Rajesh (Querist)
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16 July 2009 But if we book with some amount and receive amount different than booked . Like earlier said, We receive Rs.467 against booked amount of Rs. 515, the balance of Rs. 48 would stand in books.

and it would have to be written off to eliminate.

Is there any right way of accounting service tax by making a balance between booking amount as per accrual and paying service tax on cash basis.

Pls sort it out.

Thanks & regards

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Abhishek Mohta

Abhishek Mohta (Expert)
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17 July 2009 Your query is very genuine one Rajesh as one of my client also faced the same problem. I gave them the following solution hope it will satisfy your query as well:

While booking the income:

M/s XYZ A/c Dr. 5515
To Service Charges 5000
To Service Tax Adjustment 515

This adjustment a/c will be an intermediary account for book adjustments.

When settled for Rs. 5000

Bank A/c Dr. 5000
To M/s XYZ 5000

Service Tax Adjustment A/c Dr. 515
To Service TAx Recoverable A/c 467
To M/s XYZ A/c 48

and as it is full and final settlement

Discount allowed A/c Dr. 467
To M/s XYZ A/c 467

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