ACCOUNTING ENTRY IN CASE OF REVERSE CHARGE MECHANISM

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ACCOUNTING ENTRY IN CASE OF REVERSE CHARGE MECHANISM

Hey guys. As a part of CA Profession we all know more or less about the reverse charge mechanism. But to memorize the same here is the brief introduction about the reverse charge mechanism.

Usually under Service Tax, Tax is paid by the Service Provider to the government who charges the same in the invoice to service receiver. But in case of reverse charge Government has abolished the responsibility of depositing the service tax from service provider. In case of reverse charge the service receiver has to deposit the service tax directly to the government.

So when tax is paid by the service receiver directly to the government then here comes the question of accounting entry for the same.

So below is the accounting entry in case of reverse charge mechanism by the service tax receiver.

After Invoice of Service provider received by the service receiver.

At the time of Booking of Expenses:-

Expenses A/c                Dr.     10000

To Party A/c                  Cr.     9000

To TDS Payable A/c      Cr.     1000

At the time of Payment to the Party:-

Party A/c                                           Dr.     9000

Service Tax Input but not due        Dr.     1400

To Bank A/c                                      Cr.     9000

To Service Tax Payable A/c             Cr.     1400

 At the time of Payment of Service Tax:-

Service Tax Payable A/c                  Dr.     1400

Service Tax Input A/c                      Dr.     1400

To Bank A/c                                      Cr.     1400

To Service Tax Input but not due   Cr.     1400

At the time of Payment of TDS:-

TDS Payable A/c                              Dr.     1000

To Bank A/c                                      Cr.     1000

That’s it for Accounting Entry in case of reverse charge mechanism.

You may comment under this post if you have any ambiguity regarding the above accounting entries. Also if you think that there is a mistake or they are incomplete the do comment below to inform us.

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