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Accounting treatment of service tax

Manohar (28 Points)

10 May 2007

RESPECTED ALL,

I HV A QUERY REGARDING TREATMENT OF SERVICE TAX IN ACCOUNTS.

SERVICE TAX COLLECTED FROM PARTIES WHETHER WILL BE INCLUDED IN SALES UNDER PROFIT AND LOSS ACCOUNT OR IT WILL SHOWN UNDER CURRENT LIABILITIES. AS SERVICE TAX IS PAYABLE TO SERVICE TAX DEPTT ON RECEIPT BASIS.

EG:

SERVICE INCOME 100.00 GROUPED IN SALES

SERVICE TAX @ 10.20% 10.20 WHERE TO GROUP.

WHAT ABT GUIDELINES ICAI-AS REGARDING SERVICE TAX TREATMENT

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30 Replies

Pradeep Mitra (13 Points)
Replied 10 May 2007

Service Tax collected should be seprately credited to Service tax Payable A/c ( grouped under Current Liabilities).
the taxable input service should be net of Service Tax & Cess there on.
Thank you.

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(Guest)

what is the accounting treatment of service tax?

Gagan Gupta (Chartered Accountant) (161 Points)
Replied 24 December 2007

Accounting Treatment of Service Tax

At the time of booking of revenue
Debit - Customer (By gross invoice amount)
Credit - Income (By amount net of service tax)
Credit - Service Tax Liability (By service tax amount)

At the time of receipt of payment from customer
Debit - Bank a/c
Credit - Customer a/c

and

Debit - Service tax liability a/c
Credit - Service Tax payable a/c

At the time of payment of service tax
Debit - Service Tax Payable a/c
Credit - Bank a/c or service tax credit a/c

From Income Tax point of view (Ref Sec 43B)
Amount outstanding in "Service Tax Liability" on 31st March and remains unpaid before filing of Income Tax return should be added to income.

2 Like

Ramkrishna Mokashi (Chartered Accountant) (734 Points)
Replied 29 December 2007

I agree with the accounting procedure that Mr.Gagan mentioned here, however i am not sure in matter of reference to Sec43B of IT act. If there is an outstanding service tax liability in relation to an unreceived amount, whether such liability is to added as income? since the service tax liability has actually not accrued yet.

(Guest)

my query is about the treatment of vat & service tax?what r the journal entries 2 b passed in each case?

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(Guest)

please do reply ...itzz urgent..

M.Sriram Shenoy (CA Final) (814 Points)
Replied 14 February 2008

Assume you have availed a service worth Rs.10,000 and service tax on it @ 12.36% works out at Rs.1,236. So, the total amount payable by you will be Rs.11,236. The entry will be;

DEBIT Expenses A/c 10,000.00

DEBIT Service Input Tax Credit 1,236.00

CREDIT Bank A/c 11,236.00

(The service tax amount paid by will appear on the asset side of your Balance Sheet)

If you happen to be the service provider and you provide any taxable service for which you have collected service tax from the recepient , then the entry would be; (Assuming the same amounts as above)

DEBIT Bank A/c 11,236.00
CREDIT Respective Income A/c 10,000.00
CREDIT Service Tax Payable A/c 1,236.00

This service tax amount which you have collected from your customer will appear on the liability side of your Balance sheet.

Same entries will have to be passed for VAT also, except for the account heads as VAT Input Tax Credit and VAT Paable account for VAT paid by you and VAT collected and remitted by you respectively.

Srinivas Sharma KN (Tax Consultant) (292 Points)
Replied 14 February 2008

Explanation given by Gagan gupta is excellent

(Guest)

thanks Mr M.Sriram

I got ur point then what abt the solution given by Mr Gagan Gupta??It seems a bit different? I am confused?? Please do help me,,,,, Waiting for reply....

(Guest)

Dear Sir,

Pls explain about opening balance accounting treatment as per new amendments w e f 01.04.08

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Shubhankar Limaye (B.Com.) (174 Points)
Replied 27 August 2008

Section 43B speaks about deductions that shall be allowed only on payment. Therefore essentially there has to be a claim of deduction. In case the enterprise follows practice of recognising Service Tax as a liability and Input Service Tax as an asset, it in no way claims deduction towards the payment of service tax. How, in this case, will the provisions of Section 43B be in operation if the service tax liability remaining unpaid at the end of the year? Refer CaseCIT v. Noble & Hewitt (I) (P.) Ltd. [2008] 166 Taxman 48 (Delhi).

vishwanatham gandla (employement) (45 Points)
Replied 18 November 2008

I wanted to know the accounting entries in respect of service tax

(Guest)

I am confused on the service tax liability & service tax input credit and also the accounting of the same till the balance sheet. Can somebody please clarify the same.

sb (ca) (32 Points)
Replied 26 November 2008

When service provider provides taxable service and collects the service tax, he would become liable to pay to the service tax department but this amount is payable on receipt of the amount due from the customer. So initially we would record it as "service tax liability" and the same would be credited to "Service tax payable a/c" on receipt of the amount from the customer

1) So when the services are rendered the entry would be

Debtors a/c......Dr
To sales a/c
To Service Tax Liability a/c

2) the same would become payable to the department once you receive the amount from the customer and the entry would be

Cash a/c......Dr
To Debtors a/c

plus

Service tax liability a/c.......Dr
To service tax payable a/c

3) now when this Service tax is paid to the department

service tax payable a/c.....Dr
To Bank a/c

Suppose a person avails as well as provides taxable services then he can claim the service tax paid on input services. In this scenario the service tax input credit would be relevant.

On availing services:
   Expenses a/c.....................Dr
   Service tax credit a/c...........Dr
       To Bank a/c

On providing services:
   Bank a/c........Dr
       To Revenue a/c
       To Service tax payable a/c

now the tax payable to the service tax department would be the difference between the service tax payable and service tax credit that is available to him.

netting entry would be
Service tax payable a/c.......Dr
To Service tax credit a/c