ABC Ltd received a legal advice from Thakur & Co. (Advocate
Firm) and legal fees of Rs.100000/- is paid to a Thakur & Co.
Please pass the necessary
Journal Entry in the books of ABC Ltd.
1st Journal Entry
Legal Fee A/c Dr 100000
CGST Recoverable @9% A/c Dr 9000
SGST Recoverable @9% A/c Dr 9000
To TDS Payable 10000 (TDS on Legal Fee u/s 194J)
To CGST Output @9% A/c 9000 (Reverse Charge Mechanism)
To SGST Output @9% A/c 9000 (Reverse Charge Mechanism)
To Thakur & Co. A/c 90000
(Being Journal entry for Legal services from Thakur & Co.)
2nd Journal Entry
CGST Input @ 9% A/c Dr 9000
SGST Input @ 9% A/c Dr 9000
To CGST Recoverable @9% A/c 9000
To SGST Recoverable @9% A/C 9000
(Being GST RCM Recoverable transfer to GST Input a/c as on last day of the month)
3rd Journal Entry
Thakur & Co. A/c Dr 90000
To Cash / Bank Ac 90000
(Being Paid to Thakur & Co. against Legal Services)
4th Journal Entry
TDS Payable A/c DR 10000 (TDS on Legal Fee u/s 194J)
To Cash / Bank A/c 10000
(Being TDS Paid against Legal services)
5th Journal Entry
CGST Output @9% A/c 9000 (Reverse Charge Mechanism)
SGST Output @9% A/c 9000 (Reverse Charge Mechanism)
To Bank A/c 18000
(Being GST Paid against RCM)
Note: RCM Means:- Generally, the supplier of goods or services pays the tax on supply. In the case of Reverse Charge Mechanism, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed.
Note: Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly to any business entity located in the taxable place. GST is payable by such entity i.e. receiver.
Note: Legal service is covered under Reverse Charge Mechanism in GST
Note: In the above example Thakur & Co. is Advocate Firm and provide legal service hence RCM Is applicable in such case.
Note: CGST and SGST Recoverable A/c in under Current Assets A/s in Balance Sheet.
Note: GST on legal service is required to be paid by the receiver of the service under reverse charge @18%.
