Reverse Charge in Service Tax

Reverse Charge - Service Tax being paid by service receiver instead of Service Provider is already practiced in case of GTA transactions and Import of Services.

With effect from 01-07-2012, few more service categories have been included under Reverse Charge. Under this approach, for the payment of Service Tax, Service receiver cannot claim the general exemption of 10 lakhs.

Under this scheme new services with partial reverse charges are introduced. Where the service provider and receiver are liable to pay Service Tax in prescribed ratio

Example: Full & partial reverse charge services

Description of Services

% of Service Tax payable by the Service Provider

% of Service Tax payable by the Service Receiver

Transportation of goods by road

Nil

100%

Sponsorship Services

Nil

100%

Supply of manpower or security agencies

25%

75%

Works Contract

50%

50%

Using Tally.ERP 9 users can account all the reverse change services.

Example: ABC Company received services from Vibha Security Agency for Rs. 1,54,635. While raising the invoice service Provider has charged Service Tax on 25% of the Services. On 75% of the assessable value, ABC Company has to calculate Service Tax payable to the government.

To record the above transaction

1. Create the Service Provider Ledger

2. Create the Service Ledger

3. Record the Transaction in Journal/Purchase Voucher (to account the expenses)

4. Record the Payment Voucher (to account the payment)

5. Record a Journal Voucher (to raise Service Tax liability)

1. Create the Service Provider ledger

Go to Gateway of Tally > Accounts Info. > Ledgers > Create

In the Ledger Creation screen:

2. Create Expenses Ledger

Go to Gateway of Tally > Accounts Info. > Ledgers > Create

Note: As per Circular No. 165/16/2012-ST, w.e.f. November 20, 2012, service-specific accounting codes have been restored. For transactions recorded on and after the 20th of November, 2012, the appropriate service category has to be chosen. For more details, click here.

3. Record the Transaction in Purchase Voucher (to account the expenses)

To record the Purchase Voucher

Go to Gateway of Tally > Accounting Vouchers > F9: Purchase

  1. Press F2 and change the date to 2-11-2012

  2. In Party A/c Name field select Vibha Security Agency

  3. Under Particulars, select Service Ledger - Security Services and press enter to view Service Tax Details screen.

  4. In Service Tax Details screen

  5. In Type of Ref field select New Ref from the Method of Adjustment.

  6. In Name field accept the default reference Number displayed Purc/13-1 which can be changed by the user.

  7. In Type of Service field service type  - Reverse Charge selected in party ledger will be defaulted.

  8. In Category/Service field the service category selected in the Service Ledger will be defaulted.

  9. Press F12: configure and enable the option Allow to override Service Category during entry to Yes and save.

Note: As per the new Reverse Charge system, on Security Services Service Provider is liable to pay tax on 25% of the assessable Value while raising the invoice. On the remaining 75% of the Assessable Value the service receiver is liable to pay tax.

Note: In Release 3.7, Tax Liability of service provider has to be specified in Taxable Percentage field:

 

 

The provision to specify taxable percentage as well as the tax liability of the service provider in Taxable Percentage screen is available from Release 4.5 onwards.

Note: Service Tax is Calculated on 25% of the Assessable Value i.e. 37500.

  1. In Amount field Service Amount of Rs. 1,50,000 will be displayed

  1. Select Service Tax Ledger e.g. Service Tax @ 12%. Service Tax amount will be calculated and displayed automatically.

  1. Select Education Cess Ledger e.g. Education Cess @ 2%. Education Cess amount will be calculated and displayed automatically.

  2. Select Secondary and Higher Education Cess Ledger e.g. Secondary Education Cess @ 1%. Secondary and Higher Education Cess amount will be calculated and displayed automatically.

  3. In Bill-wise Details screen

  4. In Type of Ref select New Ref

  5. In Name field enter the bill number - Bill-0568

  6. Amount will be defaulted automatically

The completed Purchase Voucher is displayed as shown:

  1. Press Enter to save and accept

Note: Reverse Change transactions will be displayed in Tax on Services Received report when accounted.

Once the purchase transaction is recorded, the extent of input credit available can be viewed in the Input Credit Summary report.

4. Record the Payment Voucher (to account the payment)

On reverse charge transactions Service Tax liability on the  service receiver arises only on making the payment to the service provider.

Go to Gateway of Tally > Accounting Vouchers > F5: Payment

  1. Press F2 and change the date to 5-11-2012

  2. In Debit field select Vibha Security Agency ledger and press enter to view Service Tax Details screen

  3. In Service Tax Details screen

  4. In Type of Ref field select Agst Ref

  5. In Name field select Purc/13-1 dated 2-11-2012 to adjust the Pending Tax Bills

  6. Based on the tax bill selected Type of Ref, Category, Amount (Incl. of Tax) and Service Amount will be defaulted.

  1. In Bill-wise Details screen

  2. In Type of Ref field select Agst Ref

  3. In Name field select Bill-0568 to adjust the pending bill against the payment

  4. Rs. 1,54,635 will be defaulted in Amount field.

  1. In Credit field select Canara Bank

The completed Payment Voucher is displayed as shown:

  1. Press Enter to save and accept.

5. Record a Journal Voucher (to create Service Tax liability)

The liability of tax towards Security services will arises only on payment to the service provider.

To create Service Tax Liability on Security services, create the Voucher Class in Journal Voucher. To create voucher class refer - Create the Voucher Class in Journal Voucher

To record the transaction,

Go to Gateway of Tally > Accounting Vouchers > F7: Journal

  1. In Change Voucher Type screen, in Class field select Service Tax Adjustments from Voucher Class list

  1. Press F2 and change the date to 5-11-2011

  2. In Used for field select Tax on Reverse Charge from the list of Service Tax Adjustments

  1. Press Enter to view Tax on Reverse Charge screen to calculate Service Tax liability

  2. In Service Tax Liability screen

  3. In Till Date select the Voucher date to account all the reverse charge services purchased till the date of accounting the Service Tax liability. By default Voucher Date 5-11-2012 will be displayed.

  4. In Service Category field select the service received from the List of Service Categories.

Note: You can select the option Any to consider all those service categories which are received on which service receiver is liable to compute the Service Tax liability.

  1. Avail Input Credit: Set this option to Yes to consider the Service Tax amount paid towards the security services as Input Credit for further adjustment

  1. In Party Ledger field select the service provider - Vibha Security Agency from the List of Ledger Accounts

Note: You can select the option Any to consider all those parties from whom the reverse charge services are received compute the Service Tax liability.

  1. In Output Ledgers section select

  2. Service Tax @ 12% to account Service Tax

  3. Education Cess @ 2% to account Education Cess

  4. Secondary Education Cess @ 1% to account Secondary and Higher Education Cess

Note: In Output Ledgers section Service Tax ledgers are selected to compute (calculate) and create the Service Tax liability (to be payable) on the security services purchased .

  1. In Input /Expense Ledgers section select

  2. Service Tax @ 12% to account Service Tax

  3. Education Cess @ 2% to account Education Cess

  4. Secondary Education Cess @ 1% to account Secondary and Higher Education Cess

  1. On accepting the Service Tax Liability screen, Tally.ERP 9 Auto fills the details in Journal Voucher

  1. Press Enter to save and accept.

On payment of Service Tax to the Government,  the tax paid towards security services will be displayed in Input Credit Summary Report.

To view the Input Credit Summary report,

Go to Gateway of Tally > Display > Statutory Reports > Service Tax Reports > Input Credit Summary


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