Accounting Entries Under GST (Goods And Services Tax)

The introduction of the biggest indirect taxation reform in India namely Goods and ServicesTax (GST) has impacted the functioning of all the sectors of the economy. The impact of the radical shift can also be tracked in the segment of Finance and Accounting as well. Prior to the introduction of GST in India Separate accounting entries for each indirect tax law like service tax, excise, VAT etc was 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 working for getting the final accounts updated with the present ruling of the acts.

What new needs to be done in accounting for GST?

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:

  • CGST,
  • SGST and
  • IGST

A separate account is required under each head for differentiating 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.


Major accounts to be created under GST

GST

So the major accounts that are required to be created under GST for accounting purpose are as follows:

For making the payment, an additional account is required to be created as Electronic Cash Ledger which is to be maintained on GST portal and used for paying the tax liability.

Now let’s understand these accounts with the help of an example:

Mr. Harish a Cement dealer has done some transaction in the month of April 2019 and requires to ascertain his tax liability and the entries needed to be done in books of accounts. The transactions are as follows:

  • Purchases cement from the local registered manufacturer for ?150000.
  • Purchases cement from a dealer registered outside his state for ?70000.
  • Purchase of materials and packing bags for ? 40000.
  • Sale within the state amounted to ?100000.
  • Sale made outside the state amounted to ?60000.
  • Paid legal consultation fee to a CA an amount of ? 20000.

The GST rate applicable to Cement is 28% and the same for the 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 are as follows:

  • Total Input IGST is ?19600
  • Total Input SGST is ?28400
  • Total Input CGST is ?28400
  • Total Output IGST is ?16800
  • Total Output SGST is ?14000
  • Total Output CGST is ?14000

The credit of input tax can be claimed 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 credit can be allocated as specified in the table

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.

The accounting entries for setting off the Tax liabilities with credit is as follows:

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
These are the entries that a person is required to update under the new regime of GST. Besides these, if there is a tax liability than the entry for payment of such tax liability is required to be a pass. The entry for payment is as follows:
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.

Whether the introduction of GST has actually benefited and eased the procedures in Finance and accounts or it has increased the hardships??This would be a tough thing to be concluded for now. ormally, introduction of any new law or provision is seen negative in the transitional phase. So is the case with GST. The most appropriate thing at the moment would be to let us wait for some more time till GST rolls out in its complete sense in the economy and then analyse the ease or hardship status of the stakeholders.

CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.