Saturday, July 6, 2013

Accounting Entries for LBT

I received some questions for what will be the accounting entries for recording LBT transactions in Tally or other accounting software.

There can be two ways to account for (depending upon how much time and human resources you have for accounting. 

1st Way - (Easy)

Take total of all purchases (including VAT, Excise), deduct the purchases on which LBT is not applicable. This shall give you the amount of taxable purchases. Apply the LBT rate applicable for your purchases and pass the following entry at end of every month (This entry thus shall be passed on 31st of March at the year end)

Local Body Taxes a/c      Dr
      To LBT Payable a/c

At the time of making payment of this amount next month (i.e on 20th of next month, pass the below entry.

LBT Payable a/c            Dr
      To Bank / Cash a/c

2nd Way - (Detailed accounting)

At the time of passing the purchase entry itself record the LBT amount just like we do for VAT and Excise.

So, the new entry for purchases shall be

Purchases ac/c             Dr
Input Vat a/c               Dr
Local Body Taxes a/c    Dr
      To Party a/c
      To LBT Payable a/c

The at the time of payment of LBT

LBT Payable a/c            Dr
      To Bank / Cash a/c

Account Grouping

If you are using Tally for maintaining accounts then you will need to specify under which head the above account be created.

LBT Payable a/c    --  Current Liability     -- B/S Liability
Local Body Taxes  --   Indirect Expenses  -- P&L Expense

Important Note : This accounting does not apply to those entities which has to follow AS2

Also See - Changes in Accounting after Local Body Tax applicability.
Also See - Changes in Billing after Local Body Tax applicability.

Update (06/03/2014) : Tally new Version 4.8 now supports all LBT calculation, to read how to enable Local Body Tax in Tally Click here