With effect from 1-7-2012, the Central Government has notified the new Reverse charge mechanism for the payment of Service Tax in respect of certain taxable services. As per Section 68(1) of the Finance Act, every person providing Taxable services to another person is liable to pay Service Tax. This means that the liability to pay the Service Tax is on the Service Provider. In exception to the stated rule, for some services, the service receiver shall be liable to pay the Service Tax wholly or partially. This is known as Reverse Charge.
For example, Raksha Security Agency sold Security Services to ABC Company on 20.12.2012 for Rs. 1,00,000. Raksha Security Agency is liable to pay Service Tax to the extent of only 25% and so raises an Invoice accordingly. ABC Company is liable to pay the remaining 75% of the Service Tax to the Department.
To record Reverse Charge of Service Tax, the following actions are required.
1. For the Service Provider ledger: Enable the option Set/alter service tax details and provide the service tax details.
2. For the Service ledger: Select the Service category (created from Accounts Info. > Statutory Info. > Service Categories > Create > press Ctrl + C and enter the service tax and reverse charge details).
3. Sale of Services Classified under Reverse Charge: Record a Sales Voucher for sale with services classified under Reverse Charge.
4. Payment of Tax to the Government: Record a payment for paying 25% of tax amount.