GST & Income Tax Enteries

[abdusalam]

What will be general entery for

i.e
Puchases 5000+ GST15% + withholding/Income tax 25


as mostly we pay on post paid or utility bills...

and next question is

if company paying salary including some benefits in cash and some like telephone allowance which are paid by company; on what amount withholding will be charged?

Cash Paid (Salary) to emplyee
or
Cash Paid (Salary) + Allowances paid by company ?

Waiting for reply

Thanks

[Schuaeb]

Any direct cost plus any non refundable taxes make the part of purchase. So, for a sales tax registered person neither sales tax nor withholding are to be charged to cost.

Things have quite changed but I think still taxable salary is computed by adding to various allowances and perquisites which are taxable under the ordinance. So, in your case salary plus allowances make the figure from which tax is to be deducted. Any salary above Rs. 5,000 can't be paid in cash

[abdusalam]

Hope it is more clear picture of my previous question....



1 - General Ledger entry for Purchases. ( Service & Retail Business ) GST,
Withholding, any other if possible.

2 - Sales entry ( if customer company is exampted withholding tax, vise versa)

3 - Utility Bills Treatment

4 - Authorized Cash Payment. ( as per allowed in ITO and for the purpose of Audit)

5 - An employee awarded Salary 25,000 which consists 60% Basic, and 40% all
allowances.

Except above company also pay employee cell phone bill blow 2000 p.m from petty cash. note if no bill then no award.

what will be taxable salary ?

6 - On what kind of services GST is applicable?

7 - What kind of complication can be faced while auditing. (in prospactive of Sales
Tax Specially.)


Abdul Salam

[abdusalam]

I have got some answers except following

4 - Authorized Cash Payment. ( as per allowed in ITO and for the purpose of Audit)

6 - On what kind of services GST is applicable?

7 - What kind of complication can be faced while auditing. (in prospactive of Sales Tax Specially.)

Thanks for viewing my question ! ) D

[Schuaeb]

No payment exceeding Rs. 25,000 can be made in cash. It has to be made through crossed check, and tax at specified rates is to be deducted (3.5% on supplies and 5 or 6% on services)

I don't remeber exactly on what kind of services GST is applicable, you can consult Sales Tax Act for this purpose.

Your last questions needs a bit more explanation to be understood.

[kamranACA]

Dear Abdusalam,

Your query wise replies

1 - General Ledger entry for Purchases. ( Service & Retail Business ) GST,
Withholding, any other if possible.

Answer

When goods are purchased-

.......Purchases / stock / asset (DEBIT)
.......Sales tax receivable (DEBIT)

...................Supplier's / Vendor's Account (CREDIT)


When payment is made against purchase/outstanding balance of vendor-

.............Suplier's account (DEBIT)

.......................Bank account (CREDIT) or Cash account (CREDIT)
.......................Income tax deducted at source (CREDIT)


2 - Sales entry ( if customer company is exampted withholding tax, vise versa)

Answer

When sale is to be recorded-

................Debtor's account (DEBIT)

........................Sales account (CREDIT)
........................Sales tax payable account (CREDIT)

When payment is received from debtor against sales-

..............Bank account or Cash account (DEBIT)

........................Debtor's account (CREDIT)

If tax at source would be deducted, it will also be debited with the amount deducted by debtor while making the payment. Then this entry would be-

..............Bank account or Cash account (DEBIT)
..............Advance income tax (DEBIT)

..............................Debtor's account (CREDIT)


3 - Utility Bills Treatment

Answer

I could not understand what you mean by "treatment". Utility bills can be paid in cash and crossed bank payment is not compulsory. {see section 21 of the ITO 2001}. Its accounting entry would be as under

...................Utility expense (DEBIT)
...................Sales tax receivable (DEBIT)
...................Advance income tax (DEBIT)

.............................Bank account or Cash account (CREDIT)



4 - Authorized Cash Payment. ( as per allowed in ITO and for the purpose of Audit)

Answer

Maximum cash payment limit as per ITO 2001 is Rupees 10,000 for all transactions including salary. See section 21 of the ITO 2001.

As per circular issued by CBR, the limit for deduction of tax at source for purchases is Rs. 25,000 and for services is Rupees 10,000. If during a tax year the supply made by a supplier or services provided by a service provider are not above these limits, their tax at source may not be deducted by the person making payment to them.


5 - An employee awarded Salary 25,000 which consists 60% Basic, and 40% all
allowances. Except above company also pay employee cell phone bill blow 2000 p.m from petty cash. note if no bill then no award. what will be taxable salary ?

Answer

Since the year 2006, there is no concept of differentiation between basic salary and allowances in Pakistan. Only 10 % medical allowance (of gross salary excluding medical allowance) is allowed as a deduction. All other allowances are taxable and are included in salary for taxation purpose as per slabs given in first schedule of ITO 2001.

However, any payment made in shape of some re-imbursable expenses, against the expenditure incurred for carrying out the services or for employer's business purposes will be excluded from such taxable salary. For example if mobile phone is given to an employee for only and only official purpose and is also stricyly used as such, its bill's reimbursement will not make part of taxable salary of the employee.


6 - On what kind of services GST is applicable?

Answer

Services are covered under provincial sales tax ordinances issued most probably during 2000 or 2001 and is not covered in sales tax act 1990. These services are almost 8 or 10. These include for example, services of laundries, beauty parlures, courriers etc.


7 - What kind of complication can be faced while auditing. (in prospactive of Sales
Tax Specially.)

Answer

It requires a very long delibration which is not possible on this forum. You can see the audit programmes and checklists developed by some audit firm if u r a trainee. Audit checklists and plans are also developed by sales tax collectorates and CBR which are also available through rare sources. However, in brief, while doing audit two things have to be kept in view. First, no non-compliance should be there and if it is, it shud be pointed out. Second, there should be no loss to govermnetal exchequre. If it is there, it should be reported.

Hope you would find it beneficial.


Regards,


Kamran.

[abdusalam]

Thank you Mr. Kamran fro detailed answer.

Regards,