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The introduction of the biggest indirect taxation reform in India, namely the Goods and Services Tax (GST), has impacted the functioning of all the sectors of the economy. The impact of the radical shift can also be tracked in the finance and accounting segment. Prior to the introduction of GST in India, separate accounting entries for each indirect tax law, like service tax, excise, VAT, etc, were required to be made separately. Now, only entries under the goods and services tax are required to be taken on record for either supply of goods or services.
Read below to understand the changes that a person is required to perform in his normal work to get the final accounts updated with the present ruling of the acts.
GST accounting involves recording and maintaining financial transactions under the Goods and Services Tax (GST) regime. It includes tracking input tax credits and output tax liabilities and ensuring compliance with GST laws.
Earlier, different accounts were required for the accounting of different taxes such as VAT, CST, CENVAT, Excise duty, Various Countervailing duties, etc.
However, under the New GST regime, the different taxes have been subsumed in GST. So, the number of accounts required to be created has reduced drastically. Now, the business has to maintain the Accounts under three major heads that are:
A separate account is required under each head to differentiate the tax paid on inputs and tax received on output. Such a treatment enables the business to ascertain the amount of Input GST and Output GST separately. The separate treatment will enable the business to determine easily the amount of tax liability. He is required to pay under GST and the amount that is available for him to take credit.
So, the major accounts that are required to be created under GST for accounting purposes are as follows:
To make the payment, an additional account is required to be created as an Electronic Cash Ledger, which is to be maintained on the GST portal and used to pay the tax liability.
Now, let’s understand these accounts with the help of an example:Mr. Harish, a Cement dealer, has done some transactions in the month of April 2019 and is required to ascertain his tax liability and the entries needed to be done in the books of accounts. The transactions are as follows:
The GST rate applicable to cement is 28%, and the same rate applies to packaging material. Moreover, for the professional fee, the rate is 18%
| Purchases A/c | Dr. | 150000 | |
| Input SGST 14% A/c | Dr. | 21000 | |
| Input CGST 14% A/c | Dr. | 21000 | |
| To Creditors/Bank | 192000 | ||
|---|---|---|---|
| Purchases A/c | Dr. | 70000 | |
| Input IGST 28% A/c | Dr. | 19600 | |
| To Creditors/ Bank A/c | 89600 | ||
| Packaging Material A/c | Dr. | 40000 | |
| Input SGST 14% A/c | Dr. | 5600 | |
| Input CGST 14% A/c | Dr. | 5600 | |
| To Creditors/ Bank A/c | 51200 | ||
| Debtors/ Bank A/c | Dr. | 128000 | |
| To Sales A/c | 100000 | ||
| To Output SGST 14% A/c | 14000 | ||
| To Output CGST 14% A/c | 14000 | ||
| Debtors/ Bank A/c | Dr. | 76800 | |
| To Sales A/c | 60000 | ||
| To Output IGST 28% A/c | 16800 | ||
| Legal Consultation Fee A/c | Dr. | 20000 | |
| Input SGST 9% A/c | Dr. | 1800 | |
| Input CGST 9% A/c | Dr. | 1800 | |
| To Bank A/c | 23600 | ||
The total amount of Tax under different categories is as follows:
| Input Tax | Set off Against |
|---|---|
| CGST | First for IGST, then CGST |
| SGST | First for IGST then SGST |
| IGST | First IGST, then CGST, followed by SGST |
The Composition Scheme under the Goods and Services Tax (GST) is designed as a relief mechanism, particularly beneficial for small taxpayers. It offers a simplified approach to GST compliance, reducing the administrative burden significantly. Businesses opting for the Composition Scheme not only face comparatively less tedious compliance practices but also pay GST at a lower, fixed composition tax rate on their turnover. This simplified system makes it easier for smaller businesses to manage their tax obligations. Therefore, it is essential for businesses to understand the specifics of the Composition Scheme, including eligibility criteria, tax rates, and compliance requirements, to determine if it is a suitable option for them.
It's important to distinguish the Composition Scheme from the concept of a composite supply under GST. A GST composite supply refers to a supply made by a taxable person to a recipient that consists of two or more taxable supplies of goods, services, or both, or any combination thereof. These supplies are naturally bundled and supplied in conjunction with each other in the ordinary course of business. A key characteristic of a composite supply is the presence of a principal supply. The principal supply is defined as the supply that constitutes the predominant element of the composite supply. Any other supply forming part of that composite supply is considered ancillary to the principal supply. For example, if a laptop is sold with a pre-installed operating system and a carrying case, the laptop itself is the principal supply, while the operating system and the case are ancillary supplies, forming a composite supply.
| Particulars | Credit Available | CGST | SGST | IGST | Balance Credit Left |
|---|---|---|---|---|---|
| Output Tax | 14000 | 14000 | 16800 | ||
| Less: Input Tax | |||||
| IGST | 19600 | 2800 | 16800 | NIL | |
| CGST | 28400 | 11200 | 17200 | ||
| SGST | 28400 | 14000 | 14400 | ||
| Net Tax payable | Nil | Nil | Nil |
The extra input tax can be carried forward or can be claimed as a refund.
| Output IGST A/c | Dr. | 16800 |
| To Input IGST A/c | 16800 | |
| Output CGST A/c | Dr. | 14000 |
| To Input IGST A/c | 2800 | |
| To Input CGST A/c | 11200 | |
| Output SGST A/c | Dr. | 14000 |
| To Input SGST A/c | 14000 |
| Output SGST A/c | Dr. |
| Output CGST A/c | Dr. |
| Output IGST A/c | Dr. |
| To Electronic Cash Ledger A/c |
At the time of filing the annual return GSTR-9, the business is required to reconcile the balance as per the return and the balance shown in the books of accounts and adjust the books or return accordingly if some error is discovered.
Businesses must maintain detailed records of production, purchases, sales, stock, input tax credit availed, output tax payable, and output tax paid. These records should be kept at the primary place of business and be readily available for inspection.
Key accounts include:
The composition scheme is a simplified tax scheme for small taxpayers, allowing them to pay GST at a fixed rate on turnover and file quarterly returns.
A GST adjustment entry is an accounting correction used to rectify errors or update Goods and Services Tax (GST) liability or Input Tax Credit (ITC) recorded in a business's books. These entries ensure accurate GST reporting by correcting any discrepancies in calculations.
