Service Tax link while payments

santoshmkcet

Dear All,

Can any one please explain the following

1. When we post the payment to vendor in Bank Payment Voucher applying the invoice (involving service tax), in General Ledger entries Service Tax Interim and Service Tax Payable account are affected.
Similarly when we post the payment from customer in Bank Receipt Voucher applying the invoice (involving service tax), in General Ledger entries Service Tax Interim and Service Tax Receivable account are affected.
Why this happens?

2. When we post the payment to vendor in Bank Payment Voucher WITHOUT applying the invoice (involving service tax), but the payment and invoice are applied in Vendor Ledger then in General Ledger entries Service Tax Interim and Service Tax Payable account are NOT affected.
Similarly when we post the payment from customer in Bank Receipt Voucher WITHOUT applying the invoice (involving service tax), but the payment and invoice are applied in Vendor Ledger then in General Ledger entries Service Tax Interim and Service Tax Receivable account are NOT affected.
Why there is no regularity?

ssingla

I wonder if you understand the concept of Interim accounts of service tax. You should consult a finance consultant for the same.

I will try to explain in brief. Service tax credit on purchase can be set off against the liability of service tax on sales (just like VAT). The credit and liability arises on the payment of invoice and not on bookig of invoice therefore on initial invoicing the amount goes to Interim accounts. On payment and application of invoice the amount gets transferred to actual credit/payable accounts.

The situation has changed since July 2011 where POT rules have come in place and now the liability arises on invoicing. There is a hotfix for version 5.1 and 2009 available and you should merge it.

Nowadays there is no need for interim accounts.