Rent a cab service

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 April 2016 Dear Expert,

What is the accounting entries for rent a cab service for service receiver where service receiver is coming under RCM? Service tax paid under RCM should be expenses out in P & L or what for Rent a cab service in case of service receipient?? Please provide the journal entries in detail from booking of expense / payment of expenses / payment of taxes and expensing out of the same with date? and if there is time gap between expenses booking and payment to supplier then any other rules will be applicable as per PoT?

Thanks in advance

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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14 April 2016 Rent-a-Cab services, if covered under RCM, then the accounting entries are extremely simple. If a bill for Rs. 2000 is received - Cab Hire Charges / Taxi Hire is debited with Rs.2000/- .On Payment to the creditor, it is squared up. Provision should be made for Service Tax (Reverse Charge) Payable.

The entries will be as follows:

(1) Car Hire Charges Dr Rs.2,000/=
Service Tax on Car Hire Dr. Rs. 140/-
To X Rs. 2,000/-
To Service Tax on Car Hire Payable Rs. 140/-

(2) X Dr. Rs.2,000/-
To Bank Rs. 2,000/-

(3) Service Tax on Car Hire Payable Dr. Rs.140/-
To Bank Rs.140/-

Service Tax on Car Hire is an item of indirect expenses and debited to P&L Account. Hence effectively your Car Hire Expenses is Rs.2,140/-.

Alternatively Car Hire Expenses may be debited with Rs.2,140/- and Mr.X (creditor) credited with Rs.2,000/- and Service Tax on Car Hire credited with Rs.140/-. On payment of the Service Tax under RCM the account can be squared up. The expenses would already have been booked.

Rent-a-Cab service tax is not an input for CENVAT Credit and hence should be booked as an expense.

Querist : Anonymous

Querist : Anonymous (Querist)

14 April 2016 Is there any time limit for payment of Service tax under Pot for RCM on Rent a cab. Suppose we dont pay car hire charges for 1 year than what would be consequences or result? Service tax on RCM for Car hire charges is on Payment basis?? Please enlight on it.

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Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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15 April 2016 Under POT Rules, the invoice has to be paid within 90 days of the date of service. In case the same is not done, the POT is the date of service. If the invoice is settled within 90 days, then on the next due date the RCM has to be paid - i.e for an invoice paid today, the RCM to be paid by 6th May 2016 or 6th July 2016 as the case may be.

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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15 April 2016 In case the invoice is not settled within ninety days, it is advisable to pay off the RCM within the next due date after 90 days to avoid unnecessary problems. You can settle the bill anytime convenient to you.