Reverse charge of service tax
This query is : Resolved
07 February 2016
I am confuse about reverse charge service tax on Transporter and Manpower supply or placement service.
Please help me and explain on it.
07 February 2016
Service Charge is usually collected by the service provider and remitted to the credit of Government like Sales Tax / VAT. However, certain category of service providers have been exempted of this responsibility and the liability has been transferred to the Service Receiver as the deemed service provider. This is a legal fiction. With regard to the services covered under Reverse Charge, the recipient has to pay the service tax partially or fully in addition to the invoice amount. In case of full Reverse Charge, the service provider does not charge any Service Tax and in case of partial Reverse Charge, the service provider charges his portion of Service Tax which is paid to him and the balance portion is paid by the Service Recipient. In simple words Service Tax paid under Reverse Charge is an additional expense.
Four services usually subject Reverse Charge by any business entity are Goods Transportation, Rent - a - Cab, Manpower Supply & Recruitment and Legal Consultancy Services (services provided by a lawyer of a firm of lawyers). In all these cases full liability is borne by the service recipient. If the service recipient is a service provider or a manufacturer of dutiable goods, this tax paid can be used as Input Credit. However no Input Credit is available for service tax paid on Goods Transportation or for payments made towards Rent - a - Cab Service. In case of such payments, the Service Tax is directly debited as an expenses to the Profit & Loss Account. It is to remembered that Reverse Charges Service Tax cannot be paid utilizing Input Credit and has to be fully paid by Challan in cash (e-payment).
Since this query has been posted in the accounting section, I also give you the accounting treatment. It is assumed that the service recipient receiving services is also an Output Service Provider - say Business Support Service. When any invoices are received for say Goods Transportation or Rent-a-Cab Service say of Rs.10,000/-. each
The Journal Entry would be as under:
(Liability under Rent-a-Cab is on 50% of the invoice & in case of Goods Transportation is 25%)
(A) Conveyance Charges Dr 10,725
To Creditor 10,000
To Service Tax Reverse Charge 700
To Swatch Bharat Cess 25
(B) On payment being made:
Creditor Dr. 10,000
Service Tax Reverse Charge Dr. 700
Swatch Bharat Cess Dr. 25
To Bank 10,725
However in cases like Manpower or Legal Services where Input Credit is available a few more entries would be required:
(A) On receipt of Invoice:
Manpower Services Dr. 10.000
Service Tax Reverse Charge Dr. 1,400
Swatch Bharat Cess Dr. 50
To Service Tax Reverse Charge Payable 1,400
To Swatch Bharat Cess Payable 50
To Creditor 10,000
(B) On Payment of Duty:
Service Tax Reverse Charge Payable Dr. 1,400
Swatch Bharat Cess Payable Dr. 50
To Bank 1,450
(C) Transfer of Service Tax Paid to Service Tax Input:
Service Tax Input Dr 1,400
To Service Tax Reverse Charge 1,400
On payment of creditor normal accounting entries are made. The Swatch Bharat Cess will be transferred to P & L Account as an expense in the year end. Every Month the Balance of Service Tax Input will be adjusted against the output tax payable. Suppose the output Service Tax payable is Rs. 10,000/- then when the payment is made the following entries will be made:
Output Service Tax Dr, 10,000
To Service Tax Input 1,400
To Bank 8.600
I hope I have been able to clear your doubts in this regard.
Four services usually subject Reverse Charge by any business entity are Goods Transportation, Rent - a - Cab, Manpower Supply & Recruitment and Legal Consultancy Services (services provided by a lawyer of a firm of lawyers). In all these cases full liability is borne by the service recipient. If the service recipient is a service provider or a manufacturer of dutiable goods, this tax paid can be used as Input Credit. However no Input Credit is available for service tax paid on Goods Transportation or for payments made towards Rent - a - Cab Service. In case of such payments, the Service Tax is directly debited as an expenses to the Profit & Loss Account. It is to remembered that Reverse Charges Service Tax cannot be paid utilizing Input Credit and has to be fully paid by Challan in cash (e-payment).
Since this query has been posted in the accounting section, I also give you the accounting treatment. It is assumed that the service recipient receiving services is also an Output Service Provider - say Business Support Service. When any invoices are received for say Goods Transportation or Rent-a-Cab Service say of Rs.10,000/-. each
The Journal Entry would be as under:
(Liability under Rent-a-Cab is on 50% of the invoice & in case of Goods Transportation is 25%)
(A) Conveyance Charges Dr 10,725
To Creditor 10,000
To Service Tax Reverse Charge 700
To Swatch Bharat Cess 25
(B) On payment being made:
Creditor Dr. 10,000
Service Tax Reverse Charge Dr. 700
Swatch Bharat Cess Dr. 25
To Bank 10,725
However in cases like Manpower or Legal Services where Input Credit is available a few more entries would be required:
(A) On receipt of Invoice:
Manpower Services Dr. 10.000
Service Tax Reverse Charge Dr. 1,400
Swatch Bharat Cess Dr. 50
To Service Tax Reverse Charge Payable 1,400
To Swatch Bharat Cess Payable 50
To Creditor 10,000
(B) On Payment of Duty:
Service Tax Reverse Charge Payable Dr. 1,400
Swatch Bharat Cess Payable Dr. 50
To Bank 1,450
(C) Transfer of Service Tax Paid to Service Tax Input:
Service Tax Input Dr 1,400
To Service Tax Reverse Charge 1,400
On payment of creditor normal accounting entries are made. The Swatch Bharat Cess will be transferred to P & L Account as an expense in the year end. Every Month the Balance of Service Tax Input will be adjusted against the output tax payable. Suppose the output Service Tax payable is Rs. 10,000/- then when the payment is made the following entries will be made:
Output Service Tax Dr, 10,000
To Service Tax Input 1,400
To Bank 8.600
I hope I have been able to clear your doubts in this regard.
11 February 2016
For both Transporter and Manpower Supply agency (Received from other than Company), 100% service tax need to be deposited by service receiver under Reverse Charge Mechanism (RCM).
Now the service provider will not charge any service tax from you (service receipent) but you will have to calculate the same and deposite to Govt Account yourself.
If you received bill from Transporter for Rs. 10,000/-, you will pay 10,000 (reduced by TDS if applicbale) to transporter and will calculate service tax on same which will be
Rs. 10,000 X 25% X 14.5% This amount need to be paid as service tax by you to Govt.
Similarly if you recive bill for manpower supply for Rs. 10,000, you will calculate the service tax as below:
Rs. 10,000 X 14,5%. This also need to be deposited by you to Govt Account.
Now the service provider will not charge any service tax from you (service receipent) but you will have to calculate the same and deposite to Govt Account yourself.
If you received bill from Transporter for Rs. 10,000/-, you will pay 10,000 (reduced by TDS if applicbale) to transporter and will calculate service tax on same which will be
Rs. 10,000 X 25% X 14.5% This amount need to be paid as service tax by you to Govt.
Similarly if you recive bill for manpower supply for Rs. 10,000, you will calculate the service tax as below:
Rs. 10,000 X 14,5%. This also need to be deposited by you to Govt Account.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- REGARDING GST ON COMMERICIAL PROPERTY
- Is this income indian or foreign income?
- 15ca /15cb whose income tax login? remitter or nri seller's login?
- RCM applicability on Rent Paid by Registered Person to Unregistered Landlord for Residental Building
- GST on export of services and Input Credit
- ITC temporary reversal and reclaim
- Regarding Documentation & Compliances for Opening of Unit of Pvt Ltd.
- TDS U/S. 194NF
- Applicable TDS rate for sale of property in Nov 2024
- Tds on building rent monthly
- Event company query
- MIS MATCH OF INVOICE NUMBER
- VERIFICATION OF REFUND RELATED
- GST Regis.
- ITC c/f from FY2022-23 to FY2023-24 entered the same in table 8C of GSTR9 of FY 2022-23, in FY23-24
- Late filling fees Demand by gst office
- IGST Credit-Show cause notice issued-confusion
- Short and Excess provision of expenses
- Issue of gst e invoice
- Interchangeable words in accounts
Trending Online Classes
CAclubindia
