Accounting Journal Entries for Taxation - Excise, Service Tax, Vat, Tds

We all knows the importance of  provision and compute of tax liabilities. Liabilities which may be monthly/quarterly/half-yearly or yearly basis, accounting journal entries is as equal important for the same. Here we will see how to make accounting journal entries of  for taxation

I  Value Added Tax (VAT)The organizations engaged in Sale and purchase transactions have to pay Vat liability. When they purchase material Vat is paid on purchases and when they sell material Vat is collected on material.

Vat paid on purchase of material-InputVat paid on Sale of Material-OutputOutput amount is adjusted with the input and the balance is paid to the department. Entries to be made are:-

At the time of Purchase of Material           Purchase Dr………….           Vat Input Dr……………           To Creditors……………………At the time of Sale of Material

                Debtors Dr……………….               To Sales………………………….               To Vat Output…………………..At the time of Adjustment           Vat Output Dr………………..           To Vat Input……………………………..           To Vat Payable (If Output>Input)………………………………

At the time of PaymentVat Payable Dr…………………………..To Cash/bank

II  Service Tax

When services are received:-       Expenses Dr………………………       Service tax Input Dr………………       To Party

When services are provided    Debtors Dr……………………    To Revenue………………………    To Service tax Output……………

At the time of Adjustment    Service tax Output Dr…………….    To Service Tax Input…………………….    To Service tax Payable……………………….

At the time of Payment    Service tax Payable Dr………………….    To Cash/bank…………………………………….

III  Excise Duty

At the time of Purchase    Purchase Dr……………..    Central Excise Input Dr………..    Education Cess Input Dr……………….    Secondary and Higher Education Cess Input Dr.    To Creditors

At the time of Sale    Debtors Dr…………….    Manufacturing Duty (Basic+Education Cess+Secondary & higher education cess) Dr.    To Central Excise Output …………………..    To Education Cess Output…………………..    To Secondary & higher education cess Output……………    To Sales (Including excise duty amount)…………………………………………………..

IV   Tax Deducted At Source

At the time of deducting TDS    Expenses Dr……………   To TDS Payable………………….   To Party………………………………At the time of deposit of amount of TDS   TDS Payable Dr………………………   To Cash/Bank………………………………………

At the time of booking of income    Party Dr…………………….    TDS deducted………………………    To Revenue receipts……………………………….

At the time of receipt of Income   Bank/Cash Dr………………………..   To Party……………………………………..

Journal Entries of Payroll

Payroll means total salary of an employee. When we pay the net salary to any employee, we make the his or her payroll. Payroll record is necessary because it is the main expense of company. There are many liabilities like TDS, EPF and ESI which are related to payroll. So,  it is made with full of care because we have to adjust total deductions from the salary in this. We also record all these items with following journal entries.

1. Pass the journal entry when salary is due.

Basic Salary Debit         

Allowances Debit           

Company Contribution to EPF Debit

Company Contribution to EPS Debit

Administration Charges to EPF Debit

Company contribution to ESIC Debit

 EPF Payable Credit

 EPS Payable Credit

ESIC Payable Credit

Professional Tax Payable Credit

TDS Payable Credit

Labour welfare fund Payable Credit

 Loan to Employee Credit

Salary Advance to Employee Credit

Rent Recovery  Credit

Canteen Expense Credit

Salary Payable Credit

2. Pass the journal entry of the payment of salary.

Salary Payable  Debit     Cash/ Bank Credit

Now understand the above journal entry

Basic salary and allowance are the salary expense which go to salary payable and which is paid to employee at the time of payment of salary. EPF, EPS and ESI contribution will be transferred to their payable fund accounts. Because all these contribution is also expense, so we have debited the contribution in these funds. Before transferring to salary payable account, we deduct the TDS and transfer to TDS payable account. So, TDS payable account will be credited.

You should understand the meaning of above payroll items.

1. EPF = Employees provident fund.

 2. EPS = Employees pension scheme

 4. ESIC = Employees State Insurance Corporation