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How to Account Advances made to the Service Provider and to consider the Service Tax on such Advances?  @ Tally.ERP9

Query

 

How to account advances made to the service provider and to consider the service tax on such advances?

 

Solution

 

As per Service Tax Rules, Service provider is liable to pay the service Tax. In case of advances towards the services to be provided, the service provider has to pay service tax on such advances if the sales invoice is not raised within 14days from the date of receipt of advance.

 

In case of advances, service receiver is not eligible to claim the Input Credit on the advances untill the service tax on such advances are paid by the service provider, which cannot be derived by service receiver unless service provider provides invoice or proof for claiming such credits.

 

Currently, in Tally.ERP 9 there is no provision to record advance payments to service provider and account service tax on such advances.

 

 

However, customers / users can follow the alternative solution given below

 

Note: This procedure is suggested only to those users/customers who have few advance payment transactions. This alternative proceedure is not advisable for those users who have advances for all the servcies procured.

 

Step 1: Create a control ledger to account advances to the service provider

 

Whenever advance is paid to the service provider, create a control account -  Advances to Service Provider under Sundry Creditor group. Enable Maintain balances bill-by-bill to YES and set the option Is Service Provider/Receiver to NO.

Create a control ledger to account advances to the service provider in Tally.ERP9

Step 2: Record a Payment Voucher

 

Record a regular payment voucher by Debiting Advances to Service Provider ledger. In Bill-wise Details screen select the Type of Ref as Advance.

Credit the cash/bank account.

 

In Narration a detailed note can be entered for reference.

Bill-wise Details for Advances to Service Provider  in tally erp 9
Completed payment voucher is displayed as shown
Payment Voucher Creation for Advances to Service Provider  in tally erp 9

Step 3: Record Service Purchase

 

On receipt of purchase invoice form the service provider, record the service purchase invoice

 

In Service Tax Details screen, select the Type of Ref as New Ref and provide the service amount. Based on the service amount tax gets calculated.

Service Tax details for Advertisement Expenses in Tally.ERP9

Select the Service Tax Ledger to account service tax amount.

 

In party Bill-wise Details screen, select the Type of Ref as New Ref

Bill-wise details for party ledger in Tally.ERP9
Completed Service Purchase Invoice appears as shown
Service Purchase Invoice in Tally.ERP9

Step 4: Record a Journal Vocuher ( to adjust the advacne paid towards the bill)

 

After accountign purchases, adjust the advance paid to theRecord a Journal Vocuher ( to adjust the advacne paid towards the bill) in Tally.ERP9 party using the flag “Service Consideration Adjustment”. This flag will allows you to select multiple parties in a single entry.

 

1. In Debit field select the party ledger - Raj Ad Agency and press enter to view Service Tax Details screen

2. In Service Tax Details screen

  • In Type of Ref field select Agst Ref and select the Tax Bill. On selecting the bill by default the total service bill amount will be defaulted in Amount (Incl. of tax) field. In Amount (Incl. of tax) field enter the advance amount which is adjusted towards the purchases.
Service Tax Details for Party Ledger in Tally.ERP9
  • Press enter to accept the Service Tax Details screen
  • In Bill-wise Details screen select the Type of Ref as Agst Ref and seelct ST-001 from the Pending Bills. Amount of Rs. 50,000 will be defaulted automatically.
Bill-wise details for party ledger in Tally.ERP9
  • In Credit field select the control ledger - Advances to Service Provider, which is used to account the advance paid to the service provider. Amount of Rs. 50000 will be displayed in Credit amount field
  • In Bill-wise Details screen, in Type of Ref field seelct Agst Ref and select ADV/001/10-11 from the pending bills list to adjust against the purchases.
Bill-wise details for party ledger in Tally.ERP9
The completed Journal Voucher is displayed as shown
Record a Journal Vocuher ( to adjust the advacne paid towards the bill) in Tally.ERP9

Step 5: Input Credit Summary

 

After adjustement of advance towards the service purchase, check the input credit summary report which displays the input credit to the extent of advance adjusted towards the bill.

Input Credit Summary in Tally.ERP9
 
 
 
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