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Service tax reverse charge configuration SAP Blogs

What is service tax reverse charge


Service Tax is a type of Indirect Tax. Under service tax, a service provider is liable to pay service
tax applicable on the gross amount of service charge billed to the customer in a particular period.
In a development in July 2011, central govt. brought an amendment in Service Tax rules whereby
some portion of service tax payable in the listed services is to be paid by the service receiver to
the govt.
Journal Entries
A service receiver organisation used to pass following entry before the amendment:

If CENVAT credit is available on the input service tax paid:

Expense
CENVAT Credit receivable on input service
tax
Vendor
TDS Payable

Dr.

100.00

Dr.

14.50

Cr.
Cr.

103.05
11.45

If CENVAT credit is not available on the input service tax paid:

Expense
Vendor
TDS Payable

Dr.
Cr.
Cr.

114.50
103.05
11.45

After amendment, following entry is required to be posted:

If CENVAT credit is available on the input service tax paid:

(Given a scenario wherein service receiver has to pay 75% of the tax and rest 25% is payable by
the vendor)
Expense
CENVAT Credit receivable on input service tax
CENVAT Credit receivable on input service tax
(Rev Charge)
Vendor
Service tax payable (Reverse Charge)

Dr.
Dr.

100.00
3.63

Dr.

10.87

Cr.
Cr.

93.27
10.87

TDS Payable

Cr.

10.36

If CENVAT credit is not available on the input service tax paid:

(Given a scenario wherein service receiver has to pay 75% of the tax and rest 25% is payable by
the vendor)
Expense
Vendor
Service tax payable (Reverse Charge)
TDS Payable

Dr.
Cr.
Cr.
Cr.

114.50
93.27
10.87
10.36

When exploded into different components, first journal entry should look like this in SAP:
Expense
CENVAT Credit receivable on input service tax
CENVAT Credit receivable on input service tax SBC
CENVAT Credit receivable on input service tax (Rev Charge)
CENVAT Credit receivable on input service tax -SBC (Rev Charge)
Vendor
Service tax payable (Reverse Charge)
Service tax -SBC payable (Reverse Charge)
TDS Payable
Configuration:
T-codes to be used in the entire configuration are as follows:

T-code

Description

OBQ1

Create Condition Type

FTXP

Create Tax Codes

FV11

Create Condition Records

OBCN

Create Account Key

OBQ3

Update Tax Procedure

Dr.
Dr.
Dr.
Dr.
Dr.
Cr.
Cr.
Cr.
Cr.

100.00
3.50
0.13
10.50
0.37
93.27
10.50
0.37
10.36

FS00

Create GL

OB40

Maintain Account Assignment

Step 1.
Create Condition Types
Tcode: OBQ1
We have to create one condition type for each line item of service tax in the journal entry. So,
going by the first scenario, maximum 6 condition types will be defined as there are 3 line items
for service tax (2 components each):
CENVAT Credit receivable on input service tax

Dr.

CENVAT Credit receivable on input service tax (Rev Charge)


Service tax payable (Reverse Charge)

Dr.
Cr.

We would need a set of 2 condition types for one line item each for Service Tax, Education Cess
and Swachh Bharat Cess.
Also, in cases where no credit will be available, 2 more condition types will be required:
So for all the permutations and combinations applicable, we need a total of 8 condition types.

Condition
Type Code

Description

Explanation

JSER

IN: Service tax

Normal: For CENVAT credit available on input


service tax paid

JSBC

A/P SH Ecess For ST

Normal: For CENVAT credit available on input

SBC paid

JSA1

IN: Serv.tax Rev.ch

Reverse Charge: For CENVAT credit available on


service tax payable under reverse charge
mechanism

JSB1

IN: ST HEces Rev.ch

Reverse Charge: For CENVAT credit available on


SBC payable under reverse charge mechanism

JSA2

Service Tax Abt2

Reverse Charge: For service tax payable under


reverse charge mechanism

JSB2

IN:ST SHEces Offset

Reverse Charge: For SBC payable under reverse


charge mechanism

ZSER

IN: ST Non DEd

Reverse Charge, No Credit: For service tax


payable under reverse charge mechanism for which
no credit is available

ZSBC

IN: I/P SHECess ST

Reverse Charge, No Credit: For SBC payable


under reverse charge mechanism for which no
credit is available

All these condition types will be created with following specifications:

Note: Only condition type JSA2 will be created with a minus sign so as to create a credit line
item for service tax payable under reverse charge mechanism. A positive sign creates a positive
line item and a minus sign will make a credit line item.
JAS2 condition type will be created with positive sign only. This is because in the tax procedure,
the base for condition type JAS2 will be condition type JSA2 (Negative condition type) and any
value calculated on a negative base will result in a negative value only.
Step 2.
Create Tax Codes
Tcode: FTXP
For each unique combination of rates applicable, we will create one tax code (input tax type):
Tax codes
S0
SA
SB
SC
SD
SE
ZA

Description
(ST @ 14.5%_Input @ 14%)
(ST @ 14.5%_SR-75_V-25_Input @ 14%)
(ST @ 14.5%_SR-100_V-0_Input @ 14%)
(ST @ 14.5%_SR-40_V-0_Input @ 14%)
(ST @ 14.5%_SR-20_V-20_Input @ 14%)
(ST @ 14.5%_SR-35_V-35_Input @ 14%)
(ST @14.5%_SR-100_V-0(NC))

ZB
ZC
ZD
ZE
ZF

(ST @14.5%_SR-40_V-0(NC))
(ST @14.5%_SR-40_V-60(NC))
(ST @14.5%_SR-20_V-20(NC))
(ST @14.5%_SR-35_V-35(NC))
(ST @14.5%_SR-50_V-50(NC))

Note: Tax Code SA: A/P ST@14.5% _SR_75_V_25 stands for 75% of 14.5% payable by service
receiver and 25% of 14.5% payable by vendor. Codes with a description ending (NC) are meant
for the scenarios where no credit will be available. Rates will be maintained in these tax codes
against condition types JSA2 and JAS2 only (for service tax payable portion).
Step 3.
Create condition records.
Tcode FV11
For each combination of tax code and condition type, we will maintain the rate of tax to be
applied on the base amount (base amount will be picked up as per tax procedure)
Following table explains the rate to be maintained for each tax code vis--vis condition types:
CONDITIONS
KEY
Tax
GL Code
codes
(ST @ 14.5%_Input
S0
@ 14%)
(ST @ 14.5%_SRSA 50_V-50_Input @
14%)
(ST @ 14.5%_SRSB
100_V-0_Input @
14%)
(ST @ 14.5%_SRSC
40_V-0_Input @
14%)
(ST @ 14.5%_SRSD 20_V-20_Input @
14%)
(ST @ 14.5%_SRSE
35_V-35_Input @
14%)
ZA (ST @14.5%_SR-

JSER
JSBC
NORMA
RC
L
VS7
SBC

JSA1

ZSER ZSBC
RC RC
RC
RC
RC
RC
NC NC
ps1
SB1
ps2
SB2
NVV NVV
106050
206050
1060400 10604051060500
2060500
5
5
14

0.5

3.5

0.125

JSB1

JSA2

JSB2

10.5

0.375

10.5

0.375

14

0.5

14

0.5

5.6

0.2

5.6

0.2

2.8

0.1

11.2

0.4

11.2

0.4

4.9

0.175

4.9

0.175

4.9

0.175

14

0.5

14

0.5

ZB
ZC
ZD
ZE
ZF

100_V-0(NC))
(ST @14.5%_SR40_V-0(NC))
(ST @14.5%_SR40_V-60(NC))
(ST @14.5%_SR20_V-20(NC))
(ST @14.5%_SR35_V-35(NC))
(ST @14.5%_SR50_V-50(NC))

5.6

0.2

5.6

0.2

5.6

0.2

14

0.5

2.8

0.1

5.6

0.2

4.9

0.175

0.25

9.8 0.35
14

0.5

Step 4.
Create Account Key
Tcode: OBCN
Total 7 account keys are to be maintained. 6 for mapping 6 different GLs for 6 line items and 1
for those scenarios wherein no posting to service tax GL will be done i.e. where no input credit is
available and tax is to be added in the expense line item.
Following account keys will be created:
Step 5.
Update tax procedure:
Tcode: OBQ3
Tax procedure will be updated to map the condition types and account keys together and to
define which condition type takes which value as base to calculate the amount to be debited
(positive condition type)/credited (negative condition type)
Step 6.
Create GL
Tcode: FS00
Total 6 GLs will be created as follows:

GL Code

Description

Account
Group

AG Description

2060500 Service Tax Payable (Reverse Charge)

206

Statutory liabilities

Service Tax Swachh Bharat Cess Payable


2060505 (Reverse Charge)

206

1060400 Service tax Cenvat Account ( Receivable)

106

Long term loans and advances

Swachh Bharat cess Cenvat Account


1060405 ( Receivable)

106

Long term loans and advances

1060500 Service tax receivable (RC)

106

Long term loans and advances

1060505 Swachh Bharat cess receivable (RC)

106

Long term loans and advances

Statutory liabilities

Step 7.
Maintain Account Assignment
Tcode: OB40
Maintain GL account to be posted to in case of each account key as follows:
VS7
SBC
ps1
SB1
ps2
SB2

1060400
1060405
1060500
1060505
2060500
2060505