accounting of service tax refundable

[Guest]

The company is an exporter and being an exporter Service tax, VAT etc are refundable to it. The company shows Service Tax / VAT refundable under current assets. The company has not received major portion of its refunds and huge amount has accumulated under the head service Tax / VAT refundable.

Now the company wants to change the accounting ST / VAT. It will debit the expenses including service tax to its PL A/c. On receipt of refund the amount will be credited to income.

Is it an allowable accounting policy?

Can a company debit to PL A/c its refundable Service Tax / VAT to PL A/c and credit to PL A/c on receipt of refund.

Pls. reply.

[CAGOPALJI AGRAWAL]

No, it would violate the principles of accrual.

[Ramesh Kothari]

in opinion no because its current assets of the co. hence u can not charge it to P&L account if do so it will be disallowed by IT

Refund from the dept is different issue. You must hv to show in current assets column

Ramesh Kothari
 

AI Summary

Treatment of refundable service tax: record as current assets under accrual accounting, not as P&L expense. Refundable service tax and VAT arising from export transactions must be recorded as current assets in accordance with the accrual principle; charging those refundable amounts to profit and loss and recognizing refunds as income on receipt would misstate results and is likely to be disallowed for income tax purposes, so refunds should be applied to reduce the current asset balance when received.