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Accounting for Service Tax

Joe (CA) (189 Points)

03 July 2009

Could someone explain to me the accounting part of Service Tax? I am already familiar with the theoretical aspects of service tax but I need to understand the accounts to be maintained, how they are to be reflected in the financial statements properly and what entries need to be passed to ensure proper accounting of the service tax credit, liability and expensed out part.

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2 Replies

Shrey Gupta (CA Final) (35 Points)
Replied 04 July 2009

Service Providers collect service tax from the persons to whom they provide services. They credit service tax received in their books of accounts and refund this service tax to the Deptt by 5th/6th(Online) of the month succeeding the quarter.Service Tax returns have to be filed by half yearly by 25th of the next month

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Joe (CA) (189 Points)
Replied 10 July 2009

Thanks Shrey, I appreciate your earnest reply... but I am already aware of the theoretical facts you have put forth as I mentioned in my query. I you read more into what I have asked, what I am really interested in is the accounting aspects of service tax for e.g. maintaining Service Tax Input Credit A/c, Education Cess Input Credit A/c, Service Tax Payable A/c and Interest on Service Tax A/c and their proper disclosure in the financial statements.

Okay! Lets be more specific:

Service Tax Input & Ed Cess Input A/cs are to be disclosed in Balance Sheet under Loans & Assets (Adv. recoverable in cash or kind or for value received), Service Tax Payable as Current Liability etc RIGHT?
Separate Payable A/c for each category of service in case the service provider provides more than one category of service. So how does one adjust Service Tax & Ed. cess input credit that is paid on services that provide input generally and not specific to any of the multiple services that are provided by the multiple serv. providr. e.g. on telephone bills, service AMCs of general nature like software etc?
What about service tax not collected from the clients of the service provider or collected short. Naturally, the serv. prov. is liable to pay such tax from his own pocket and hence it should be shown in the Profit & Loss A/c as expensed out item? Can this be claimed as a deductible expense while computing Business Income as it is a statutory due allowable under one of the items of sec. 43B of IT Act?
If service tax is not paid for one or more months, can service tax be paid for a later month before paying the service tax unpaid for the previous month(s) (unlike FIFO)? Also, if this is possible, then interest liability, say if all the payments (including the later month's service tax) are beyond due dates, would be higher than if FIFO was followed, CORRECT?

I think I must have answered most of my questions but still they are open to ANYBODY to comment on INCLUDING YOU SHREY.