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Journal Entries of Service Tax

>> January 17, 2014

Service tax is the one of the important tax which is imposed by Govt. of India. It is collected by service provider from the person who gets the services and then, it is deposited in Govt. account. So, for better accounting of service tax, we pass the journal entries relating to service tax.

Today, our aim is to teach all the journal entries which are relating to service tax. We can divide the journal entries of Service Tax into three parts.

1. Journal Entries of Service Tax in the Books of Service Provider

2. Journal Entries of Service Tax in the Books of Service User

3. Journal Entries of Adjustment of Service Tax

Before explaining all three parts, you should know the list of services which are taxable under service tax at here. Current rate of service tax is 12.36% on the gross value of service.  Now,  we are explaining about three parts in detail form.

A. Journal Entries of Service Tax in the Books of Service Provider 

1. When service provider receives the money from service user. This money can be divided into two parts. One is the fees for service uses and other is the service tax on services. Service provider will pass following journal entry.

Bank Account Debit 

Party of Service uses Account credit 

Service Tax Collected  Account Credit 

Service tax collected account is the liability account because this amount is not of service provider. This amount will be deposited in Govt. account. 

2. When service provider will pay the collected service tax to Govt. service tax department, following entry will be passed. 

Service Tax Collected Account Debit

Bank Account Credit

B. Journal Entries of Service Tax in the Books of Service User

Like any other expenses, service tax is also expense of service user. Service user take the service of internet, mobile, electricity and others. All these total bill have the amount of service tax which he had paid with these expenses. So, when we pass the entry of these expenses payment, there is no need to pass extra service tax expenses payment's journal entry. But if we track the total payment of service tax or any other purpose, we can show it in the payment journal entry with following ways. 

Expenses of Service Uses  Account Debit 

Service Tax Input Account Debit 

Bank Account Credit 

C. Journal Entries of Adjustment of Service Tax 

As per the Service tax law, service tax works like VAT. If service user uses services for output of services, then he has the right to get the credit of his input service tax. For example, I am computer tutor. I uses internet for coaching my students. So, I have the right to get service tax credit. For this, I have to record both service tax input and total service tax collected. After deducting total service tax input from service tax collected, I will deposit net amount to govt. account. 

1. As service user of internet, I pay the bill of internet including service tax input. 

Internet Expense Account Debit 

Service Tax Input Account Debit 

Bank Account Credit 

2. As the service provider of commercial coaching, I have used internet services. I have received tuition fees with service tax.

Bank Account Debit 

Tuition Fees Income  Account credit 

Service Tax Collected  Account Credit 

3. For doing the adjustment of service tax, following entry will be passed

Service Tax Collected Debit 

Service Tax Input Account Credit 

Service Tax Payable Account Credit

4. For paying net service tax payable account in govt. account

Service Tax payable Account Debit 

Bank Account Credit 

There are also lots of other adjustments of service tax whose entries should also pass. For example, if we have paid the service tax for any service. If same services are used for production of a product and export it, we have the right to get refund of this type of service tax, if you want to know its journal entries and accounting treatment, see following video.

Related Resource : List of Journal Entries 

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