Aug 12, 2008

Service Tax Flow in Oracle

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
Readers, pl. update this section by providing your comments
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

Other Features

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

Since Service tax is an evolving legislation there will be a lot of new knowledge being generated. I want this site to be a one stop shop for Service Tax setting up in Oracle. Pl. be active with your comments so that all the users and viewers to this site can benefit.


Varsha said...

Very helpful! Thanks for sharing this knowledge!

Dhananjay said...

Really great subscription.

But please tell me, there is a requirement of filing quarterly return under Service Tax Act. And in Oracle there is no return provided. So how do we go ahead.

Ramaswamy VK said...


One way to handle this could be thru a custom report. For example, eventhough Oracle provides TDS returns as a standard report, I know of my companies creating custom report for the same.
Which version of Apps you are implementing / Using? What is your India Localization Patch Number?

Dhananjay said...

Thank you Mr.Ramaswamy

We are implementing version with India Localization.

There is a report called 'India-Service Tax ST-3'which is a quarterly return under Service Tax Act.

Actually I am looking for some help on a particular scenario.
My client is paying freight charges (Inward & Outward Freight) to different transporters. These transporters are not charging any service tax in their invoices. But Service Tax liability accrues on the 25% portion of the invoice amount. For example, if transporters invoice is say for Rs.10,000/- service tax is payable on Rs.2,500/-. At present they are manuaaly tracking all transporters bills in an Excel file and computing liability on the same.
May I request you to please suggest a workarund to capture this scenario in Oracle Apps.

I shall be very grateful to you for your valuable suggestion.

Best Regards

Srivardhan Reddy said...

Thanks Ramaswamy, It's Very helpfull.

Shiri said...

Hi Ramaswamy,

Pleae suggest me a solution for the following scenario in racle Apps.

Input Credit Available Rs100
Service Tax output Rs200
Net Payables Rs-100

But Clients does't want to use Input Credit. He may use partially or some time don't use credit available at the time settlement.

He may want to pay total output Rs200
Or may want to use inpurt credit partially. Out of availbale Rs100 he may want to use Rs50 only.

How can we do this in Oracle Apps.

Thanks In Advance,
Srivardhan Reddy

Ramaswamy VK said...

Hi Shiri,

I think that you have the option to choose to net off the input credit / Pay the full service tax. I remember that it has got to do with configuring your Organization India Localization information and India Localization Consolidation.
I am not able to help you further, but you might get some very good docs on Metalink, I think.

Muthukumar said...


I am working on R12 AR India Localization.

I completed the Service TAX Setup

It's Working Fine in AP.

But it's not working in AR.

What are the prerequisite R12 AR Service tax.

Thanks and Regards,

Uptra Consultancy said...

Worthful post thanks for sharing the useful post with us learned something informative.