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Accounting Purchase of Service at Lower Rate of Tax @ Tally.ERP9


Is it possible to account the service tax transactions where the service tax is charged at a rate lesser than the actual percentage?


In some cases, there may be provision under law to charge service tax at a rate lesser than the actual percentage. Example: Works Contract Services - Tax is charged @ 4%.

In this scenario the service provider/receiver has to change the rate of tax applicable on the service provided/received while accounting the transaction. Altering the Rate of Service Tax during entry for each & every transaction of this nature will be time consuming & sometimes may forget to alter the rate which leads to wrong calculation of Service Tax.

To assist the users to account the services on which service tax charged is lesser than the actual rate a provision has been provided to alter the Service Tax rate in the service Ledger.

Example: On 15-02-2011, ABC Company purchased works contract services from AMT Services for Rs. 2,60,000 on which service tax is charged @ 4.12%

Step 1: Create the Service Ledger

To create the Service Ledger

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

Set Up:

In F12: Configure (Ledger Configuration)

Set the option Allow ADVANCED entries in Service Tax Master to Yes

In Ledger Creation screen

  • Enter the Name of the service expense ledger you wish to create, for e.g., Works Contract Services.
  • Select Indirect Expenses as the group name in the Under field.
  • Set Inventory values are affected to No.
  • Set Is Service Tax Applicable to Yes.
  • In Default Service Category field select Works Contract Services from the List of Service Categories.
  • Enable the option Set/Alter Tax Rate Details to Yes and press enter to view Tax Rate Details screen
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Note: Set/Alter Tax Rate Details option will appear in service ledger creation/alteration screen only when the option Allow ADVANCED entries in Service Tax Master is set to Yes.

  • In Tax Rate Details screen
    • Category: In this field select the service category/categories, which you are purchasing or selling for which the service tax charged is lesser than the actual rate.
    • Applicable From Date: In this field mention the date from when the changed rate is applicable for the service category.
    • Service Tax: In this field mention the applicable service tax for the service category.
    • Education Cess: In this field mention the applicable education cess for the service category.
    • Secondary Education Cess: In this field mention the applicable secondary education cess for the service category.

Note: The Service Tax charged on works contract service is 4%. Hence in Service Tax column the Rate has been changed. The Rate defined will override the default percentageof tax for the ledger. The Tax Rate specified in Tax Rate Details screen will be considered for tax calculation during entry.

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  • Press enter to save the Tax Rate Details and Ledger Creation.

Step 2: Record the Transaction in Purchase Voucher

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

1. Press F2 and change the date to 15-02-2011

2. In Party’s A/c Name field select the service provider e.g. AMT Services

3. Under Particulars select the Service (purchases) Ledger e.g. Works Contract Services and press enter to view Service Tax Details screen

4. In Service Tax Details screen

  • Type of Ref.: Select New Ref from the method of Adjustment.
  • Name: This filed displays the Reference Number for the service tax calculation. The default Reference Number displayed, is a combination of abbreviation of Purchase, Voucher Number and Line Number. Example: Purc/1-1 which can be changed by the user. Service Input credits are tracked with these Reference Numbers.

Note: If the invoice no is mentioned in the Supplier Invoice No. field, then Tally.ERP 9 captures invoice number instead of voucher number in Reference Number displayed inName field.

  • Type of Service: Based on the Type of Classification selected in the Service Provider, Type of Service will be defaulted (displayed). By default Input Credit is displayed and Tally.ERP 9 skips the field.
  • Category: Based on the service Category selected in the Purchase Ledger, category will be defaulted (displayed). By default Works Contract Service is displayed.
  • Service Amount: In this field enter the Service Amount of Rs. 2,60,000
  • Amount (Incl. of Tax): In this field the cumulative (collective) amount of Service amount and Tax will be displayed in this filed
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Note: Service Tax Rate defined while creating the purchase/expense ledger is displayed by overriding the default percentage of 10%.

5. In Amount filed the Service Amount of Rs. 2,60,000 will be defaulted automatically.

6. Under Particulars select service tax ledger e.g. Service Tax Ledger. Service Tax amount will be calculated and displayed automatically.

7. Enter the Bill-wise Details

The completed service purchase voucher is displayed as shown

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8. Press enter to accept the voucher.

Note: the above transaction can also be recorded in Journal Voucher.

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