Service Tax is a form of indirect tax imposed on specified services called "taxable services". Service tax cannot be levied on any service which is not included in the list of taxable services. Over the past few years, service tax been expanded to cover new services. The intention of the government is to gradually increase the list of taxable services until most services fall within the scope of service tax.In the Union Budget of India for the year 2006-2007, service tax has been increased from 10% to 12%. For the purpose of levying service tax, the value of any taxable service should be the gross amount charged by the service provider for the service rendered by him
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Accounting for Service Tax
Service tax follows 'cash basis' of accounting. The actual service tax impact occurs on the event of the closure of the document. For example, the service tax recovery occurs at the time of payment of AP invoice and service tax liability occurs at the time of entering receipts in AR. To integrate the cash basis accounting with the 'accrual basis' of accounting, minimum of four new accounts are setup in Oracle. They are the Service Tax Interim Recovery account, the Service Tax Interim Liability Account, Service Tax Receivable A/c and Service Tax Payable A/c.
Accounting flow in Service tax is simple and intutive.
On PO Receipt
Service Tax Interim Recovery A/c Dr
AP Accrual A/c Cr
On Payment of receipt matched invoice
Service Tax Receivable A/c Dr
Service Tax Interim Recovery A/c Cr
On entry of AR Invoice
Receivables A/c Dr
Service Tax Interim Liability A/c Cr
On applying the receipt against the invoice
Service Tax Interim Liability A/c Dr
Service Tax Payable A/c Cr.
On settlement, if there is a net service tax payable, an invoice is generated on the tax authority
Service Tax Payable A/c Dr
Supplier Liability A/c Cr
1. You can net off service tax payable against Cenvat (RG / PLA) accounts
2. You can distribute service tax from one OU to multiple OUs
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