GST Accounting Entries

All the taxes are to be done related to the GST accounting system. The Goods and Services Tax, simply known as GST will be the one type of tax which will be used to subsume all the other taxes. Thus, this system will create the regime called the “One Nation One Tax” motto. Initially, the program will face many challenges regarding the transition. But hopefully, over time, much more clarity will be introduced in so many fields of the business sector by GST. One such field is the bookkeeping and the accounting field. In this article, a detailed description related to GST accounting will be presented to eradicate confusion.

Present Scenario

For excise, several different accounts have to be maintained. For example the CTS, service tax, VAT and so on. Below a list depicting some of the accounts, any company has to look after currently is given, excluding accounts like the sales, purchase, stock etc.

Excise payable account (for the manufacturers)
CENVAT credit account (for the manufacturers)
Output VAT account
Input VAT account
Input Service tax account
Output Service tax account

Here is an example, to clearly show what is going on. Suppose, Mr. Z is a businessman. So, he has to take care of these basic accounts:

Output VAT account
Input VAT account
CST Account (for the inter-state sales and all purchases)
Service tax account [He will not be able to make a claim of any service tax input credit since he is a company owner with output VAT. Service tax usually cannot be set off against VAT/ CST]

GST Plans

According to the new GST accounting measures, all the taxes, such as VAT, excise, service tax and so on, will be merged together under one single account. Supposes, the same businessman, Mr. Z, therefore, has to look after these accounts, with the exclusion of the stock, sales and purchase accounts.

Input CGST account
Output CGST account
Input SGST account
Output SGST account
Input IGST account
Output IGST account
Electronic Cash Ledger ( is to be maintained on the Government GST portal in order to pay GST)

All the accounts that are to be maintained are given here.

Even though maintaining these accounts seem like a hassle, once someone learns about them, anyone will find that it is quite easy to keep track of the records. One of the biggest benefits, Mr. Z, the businessman will come across is that he can easily set his input service tax of with his output tax on the sales.

Here are a few basic examples to make the whole thing clear, all amounts with the exclusion of GST.

First Example:

Z made a purchase of products worth Rs 100,00 in the local market, or intrastate.
He sold all the items for Rs 150,000 within the same state.
The fee of his legal consultation amounted to Rs 5,000
The cost of the furniture he bought for his office amounted to Rs 12,000

Now, keeping in mind that the SGST is at 8% and the CGST is also at 8%, the entries will be something like this.

1	Purchase Account ………Dr.	1,00,000
	Input CGST Account ……Dr.	8,000
	Input SGST Account ….Dr.	8,000
	To Creditors Account		1,16,000

2	Debtors Account …Dr.	1,74,000
	To the Sales Account		1,50,000
	To the Output CGST Account		12,000
	To the Output SGST Account		12,000

3	Legal fees Account ……Dr.	5,000
	Input CGST Account ………Dr.	400
	Input SGST Account ……Dr.	400
	To Bank Account		5,800

4	Furniture Account ……Dr.	12,000
	Input CGST Account ………Dr.	960
	Input SGST Account ………Dr.	960
	To XYZ Furniture Shop Account		13,920

Total of the Input CGST=8,000+400+960= Rs. 9,360
Total of the Input SGST=8,000+400+960= Rs. 9,360
Total of the output CGST=12,000
Total of the output SGST=12,000
Therefore, the Net CGST payable=12,000-9,360=2,640
So, Net SGST payable=12,000-9,360=2,640

5	Output CGST Account ………Dr.	12,000
	Output SGST Account ………Dr.	12,000
	To the Input CGST Account		9,360
	To the Input SGST Account		9,360
	To the Electronic Cash Ledger Account		5,280

Therefore, from the given tables above, we can see that the tax liability for Mr. Z’s company has been reduced to Rs 5,280 from Rs 24,000 because of the input tax credit. Moreover, the GST on the legal fees has also been adjusted accordingly which would have been impossible in the present tax regime. Furthermore, if there was any leftover input tax credit, it would be carried on to the next year.

Second Example:

Z made a purchase of products amounting to Rs 150,000 from anywhere out of the state.
He sold around Rs 150,000 in his local market
He sold the rest for Rs 100,000 outside of his state.
The telephone bill for his office is Rs 5,000
He purchased an item cost Rs 12,000 for his office locally.

Now, keeping in mind that the SGST is at 8% and the CGST is also at 8%, the entries will be something like this.

1	Purchase Account ………Dr.	1,50,000
	Input IGST Account ………Dr.	24,000
	To the Creditors Account		1,74,000

2	Debtors Account ………Dr.	1,74,000
	To the Sales Account		1,50,000
	To the Output CGST Account		12,000
	To the Output SGST Account		12,000

3	Debtors Account ………Dr.	1,16,000
	To the Sales Account		1,00,000
	To the Output IGST Account		16,000

4	Telephone Expenses Account….…Dr.	5,000
	Input CGST Account ………..Dr.	400
	Input SGST Account …..……Dr.	400
	To the Bank Account		5,800

5	Office Equipment Account……..Dr.	12,000
	Input CGST Account ………Dr.	960
	Input SGST Account ……Dr.	960
	To XYZ Furniture Shop Account		13,920

Total of the CGST input =400+960=1,360
Total of the CGST output =12,000
Total of the SGST input =400+960=1,360
Total of the SGST output =12,000
Total of the IGST input =24,000
Total of the IGST output =16,000

Particulars	CGST	SGST	IGST
Output liability	12,000	12,000	16,000
Less: Input tax credit
CGST	1,360
SGST		1,360
IGST	8,000		16,000
The Amount payable	2,640	10,640	NIL

The IGST credit will firstly be appealed to set the IGST off before setting off the CGST. If there is any balance, it will put implemented on SGST. Therefore, out of the total input of IGST of Rs 24,000, it will be set off completely against IGST before anything else. After that, the balance of Rs 8,000 will be set off against the CGST. Hence from all these calculations, we come to know that only around Rs 13,280 is payable from the total amount of Rs 40,000.

Therefore, the entries will be as follows:

	Set-off against the CGST output
1	Output CGST ………Dr.	9,360
	To the Input CGST A/c		1,360
	To the Input IGST A/c		8,000

2	Set-off against the SGST output
	Output SGST …………Dr.	1,360
	To the Input SGST A/c		1,360

3	Set-off against the IGST output
	Output IGST …………Dr.	16,000
	To the Input IGST A/c		16,000

4	Final payment
	Output CGST A/c ………Dr.	2,640
	Output SGST A/c ………Dr.	10,640
	To the Electronic Cash Ledger A/c		13,280

Impact of GST on the Financials

The Account of Profit and Loss

Particulars	Rs.	Particulars	Rs.
Raw material consumption	YYY [Decrease]	Sales	YYY***
Purchases	YYY
Depreciation	YYY
Other Expenses	YYY

Diminishing in the cost of the Raw Materials and the other expenditure

The purpose of this GST accounting is to provide effortless mean input credits for both the interstate and the intrastate purchase of items. This means that the reduction of cost of the raw materials can be set off against the GST output payable on the sales by the input GST. Moreover, the goods and services tax paid for many items such as the audit fees, legal consultation, and consultation about engineering and so on can be put off against the output GST.

Presently, the input credit of the service tax already paid is not able to be adjusted besides the output excise or VAT. These, in turn, will help to diminish the overall expenses effectively. It must be noted though that the sales impact may differ on the basis of the GST rates and the companies.

Balance Sheet

Particulars	Rs.	Particulars	Rs.
Capital	YYY	Fixed assets	YYY [Decrease]
Current liabilities	YYY	Current assets	YYY
Tax payable	YYY	Credit receivable	YYY

The effective cost for the assets which are fixed will be reduced since the input credit will be found available for both the normal capital goods and the services related to the items such as inspection, installations and so on. Some changes will also be done to the credit receivable and the tax payable. All the present excise payable, VAT payable Service Tax, CENVAT credit, VAT credit accounts will be maintained by only three accounts namely – IGST, SGST and the CGST – put under each of the above.

Principle of Accounting

It is mandatory to apply GAAP on the GST. This means that all the principles that follow the revenue recognition and so on will be applicable as well.

Time Period for the Retention of the Accounts

Starting from the date of the filing of the yearly return from the relevant year, all members of the registered taxable people have to maintain and keep the GST accounting books for up to five years. This is the time period determined for them.

Several different aspects need to be addressed regarding the systems related to the financial reporting in order to make correct reporting when transition into GST accounting is being conducted. It is crucial to the companies to plan in order to address changes which arise due to the implementation of GST in the proper way possible so that the transition cost is reduced and to reduce the disruption in the business.

For more information regarding the Goods and Services Tax Act refer to Company Vakil. Our team of legal professionals provide GST Registration and many other services at some of the most nominal rates and all through our online platform at Company Vakil.

Present Scenario

GST Plans