Service Tax Compliance by Chartered Accountants having turnover exceeding Rs. 50 Lakh
Till 31.03.2011, point of taxation in case of eight specified services including Chartered Accountants (CAs) was determined on the basis of receipt of payment. However, w.e.f. 01.04.2011, this benefit has been extended to all services albeit, in a slightly modified form. Now all individuals, partnership firms (including limited liability partnership firms) having a turnover not exceeding Rs. 50 lakh in the previous year can pay service tax on receipt basis in the current financial year.
Relevant provision – Rule 6(1) of the Service Tax Rules, 1994
"(1) The service tax shall be paid to the credit of the Central Government, -
(i) by the 6th day of the month, if the duty is deposited electronically through internet banking; and
(ii) by the 5th day of the month, in any other case,
immediately following the calendar month in which the [Service is deemed to be provided as per the rules framed in this regard.
Provided that where the assessee is an individual or proprietary firm or partnership firm, the service tax shall be paid to the credit of the Central Government by the 6th day of the month if the duty is deposited electronically through internet banking, or, in any other case, the 5th day of the month, as the case may be, immediately following the quarter in which the [Services is deemed to be provided as per the rules framed in this regard.
Provided further that the service tax on the service deemed to be provided in the month of March, or the quarter ending in March, as the case may be, shall be paid to the credit of the Central Government by the 31st day of March of the calendar year.
Provided also that in case of taxable services covered under sub-rule (1) of rule 3 of the Export of Services Rules, 2005, this sub-rule shall not apply subject to the condition that the payment is received within the period specified by the Reserve Bank of India, including such extended period as may be allowed from time to time.
Provided also that in case of individuals and partnership firms whose aggregate value of taxable services provided from one or more premises is fifty lakh rupees or less in the previous financial year, the service provider shall have the option to pay tax on taxable services provided or to be provided by him up to a total of rupees fifty lakhs in the current financial year, by the dates specified in this sub-rule with respect to the month or quarter, as the case may be, in which payment is received."
In other words, the point of taxation (POT) in case of all service providers whose turnover exceeded Rs. 50 lakh in the year 2011-12 will be receipt of payment or issuance of invoice, whichever is earlier. Thus, all CAs/firms of CAs with a turnover exceeding Rs.50 lakh in the year 2011-12 will also have to pay service tax on accrual basis.
Compliance advisory for firms maintaining books of accounts on cash basis
As majority of the CAs/firms of CAs (firm) maintain their books of account on cash basis, complying with the new system will require making adjustments/changes therein, though the firm can continue to maintain the Cash Method of Accounting. The firm can creditService Charges A/c in the books on receipt basis and all other income and expenditure on cash basis.
The service tax recovered in respect of invoices issued before 31.3.2012 should be credited to Service Tax A/c No. l and the same should be debited when service tax is paid to the Government every quarter. For this purpose, a separate Service Charges Register No. 1 can be maintained by the Firm containing the following columns.
(i) Date (ii) Invoice No. (iii) Name of Client (iv) Services Charges (v) Service Tax (vi) Total (vii) Date of Receipt (viii) Receipt No. (ix) TDS (ix) Amount Received
For accounting purposes, a separate Receipt Register No. 1 containing the following information in respect of invoices issued up to 31.3.2012 should be maintained:
(a) Date, (b) Receipt No. (c) Name of Client, (d) Date of Invoice (e) Invoice No. (f) Services Charges Received (g) Service Tax (h) TDS (i) Net Amount.
From 01.04.2012 onwards
The firm can maintain its regular accounts on cash basis of accounting. It can follow the following method for Service Tax purposes.
(i) The Firm should maintain a separate Service Charges Register No. 2 with following columns:
(a) Date (b) Invoice No. (c) Name of Client (d) Service Charges (e) Service Tax (f) Total (g) Date of Receipt (h) Receipt No. (i) Service Charges Received (j) Service Tax Received (k) TDS Deducted (I) Net Amount Received
(ii) At the end of each quarter the Firm should pay service tax as per total of item (e) which is the service tax on invoices issued during the quarter (Accrual Basis) plus item (j) which is the service tax actually received from the service receivers. This service tax should be debited to Service Tax A/c No. 2 in the Books on the date of payment.
(iii) Service tax received on actual receipt basis as per Column (j) should be credited to Service Tax No. 2 A/c in the Books.
(iv)The debit balance in the Service Tax No. 2 A/c will represent service tax paid on invoices issued but not yet recovered. This can be carried forward to next year.
(v)The actual payment of Service Tax in A/c No. 1 and 2 will be eligible to CENVAT Credit as per the provisions of CENVAT Credit Rules, 2004.
(vi)If the entire amount of invoice is not received but is settled for lesser amount and service tax received is of lesser amount, set off of service tax can be claimed as per the provisions of Service Tax Rules, 1994. Similar will be the position if service is not provided either wholly or partially for any reason while the invoice for the same has been issued or the payment therefor has been received.
For accounting purposes, a separate Receipt Register No. 2 containing the following information in respect of invoices issued from 01.04.2012 onwards should be maintained:
(a) Date (b) Receipt No. (c) Name of Client (d) Date of Invoice (e) Invoice No (f) Service Charges, (g) Service Tax (h) Invoice Total (i) Services Charges Received (j) Service Tax Received (k) TDS (I) Net Amount Received.
The amount of Service Charges received, service tax received and TDS should be adjusted in respective accounts in the books.
Service tax in case of statutory audits
CAs may consider revisiting their service contracts in respect of statutory audits, which is a major source of revenue for majority of CAs and negotiate with their clients to pay the service charges within three months from the last date of filing the tax audit report i.e., 30thSeptember of the relevant year. Now, when the time period of issuance of invoice has been increased from 14 days to 30 days from completion of service, CAs can issue the invoice on or before October 29 of a year – service will be taken to be completed when the audit report is filed on 30th September. Thus, in effect they will have three months to recover the fee and service tax from clients as service tax for the quarter Oct-Dec is payable by January 5th/6th of the next year.
Source: IDTC, ICAI