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service tax input and output

K V Sukumar (B.Com) (60 Points)

13 January 2010

13.01.2010

Sirs,

Please let me know how to account the following

We are an outdoor advt agency .

We take a board from an another advt agency for Rs 10,000 and sell to my client for Rs 12,000 . In this following are involed.

1) We bill the client for Rs 12,000 + 10.3% and the client pays after 90 days .

2) Another agency bills us for Rs 10,000 and we pay them in 30 days .

How the entries are to be passed . under what account .

Do we need to open separate accounts for Service Tax 10 % , Education cess 2% and Higher Sec Edu cess 1% for both input and output and payment to service tax .

please explain in detailed .

thank you,

sukumar

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5 Replies

Amir (Learner) (4016 Points)
Replied 13 January 2010

Dear KV Sukumar,

A/c entries will be as follows:-

FOR SALE OF SERVICE

1) At the time of BILLING

DEBTOR A/C........................Dr 13,236

To Income 12,000

To Service Tax Output A/c 1,200

To Edu. Cess Output A/c 36

2) At the time of receipt (after 90 days)

Service Tax Output A/c .......................Dr 1,200

Edu. Cess Output A/c .......................Dr 36

To Service Tax Payble A/c 1,200

To Edu. Cess Payable A/c 36

SIMILARLY FOR PURCHASE OF SERVICE

1) At the time of BILLING

EXPENSE A/C........................Dr 10,000

Service Tax Input A/c ..........Dr 1,000

Edu. Cess Input A/c..............Dr 30

TO Creditor A/c 11,030

2) At the time of payment (after 30 days)

Service Tax Input A/c .......................Dr 1,000

Edu. Cess Input A/c .......................Dr 30

To Service Tax Payble A/c 1,000

To Edu. Cess Payable A/c 30

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K V Sukumar (B.Com) (60 Points)
Replied 13 January 2010

MR.Amir

Thank you for your reply . Correct if i am wrong .

At the time payment i think service tax payable a/c should be debited and not credit . I think it might be typing error .

Please let me know whether it should posted as journal entry .

sukumar

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Amir (Learner) (4016 Points)
Replied 13 January 2010

Dear K V Sukumar,

There is no typing error, the said entry is FOR UTILIZING THE INPUT CREDIT( since the same is allowed only on payment)

In service Tax, Creit is allowed on Payment & Liability also arises on receipt that is why -

I tell u why I suggested u to pass entry in this manner, BECAUSE THIS WILL ENABLE U TO DEPOSIT THE SERVICE TAX SIMPLY BY LOOKING AT THE BALNCE ON THE LAST DAY OF THE MONTH IN "SERVICE TAX PAYABLE A/c"

No need to do separate calulations to work out the figure of actual payment since the sme is reflected by ur "Service Tax Payable A/c"

At the time of payment (after 30 days)

Service Tax Input A/c .......................Dr 1,000

Edu. Cess Input A/c .......................Dr 30

To Service Tax Payble A/c 1,000

To Edu. Cess Payable A/c 30

Pavan Jain S (Chartered Accountant) (1575 Points)
Replied 14 January 2010

I respectfully admire the reasoning given by Mr. Amir. But the service tax payable accouny has to be debitted on payment so that it would amount to claiming of input credit on payment. If the erroneous entry is retained, it would increase the liability to the tune of Rs. 1030

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