Understanding GST Accounting – How to Pass Entries Under GST?
Under the GST regime, the GST replaced all taxes including, VAT, excise duty, and service tax. The objective behind this was to create a unified, consumption-based tax system. As a result, the tax proceeds would be paid to the state where the goods and services were consumed rather than where they originated. Accounting for tax became a lot easier and more convenient, too, owing to the reduction in the number of records to be maintained.
Read on to find out more about GST Accounting in detail!
What is GST Accounting?
It is important for the accounting entries under GST to be understood and passed through the accounting department. Books of accounts must tally with GST reports, and inconsistencies must be reduced as much as possible while filing GST returns like GSTR-1 and GSTR-2B.
Previously, each tax needed its own accounting, including excise, VAT, CST, and service tax. Additionally, one couldn’t claim an input tax credit on both the centre and the state Government’s taxes, resulting in a need for multiple ledger accounts.
However, the number of ledger accounts has been reduced to a great extent due to accounting for GST journal entries.
What are the Prerequisites for Maintaining Records and Accounts under GST?
The following people are in charge of keeping records and accounts:
- The business owner or the person in charge of the location where products are stored. They should keep accounts for the duration that the goods were kept there (example: warehouse). This covers information on the delivery, transportation, receipt, and disposal of goods.
- The person who transports products and services must keep records of the goods they deliver, transport, and store while in transit.
Here are a few other things to keep in mind:
- Under the GST regime, all records and accounts must be kept at the principal place of business, i.e., the central location where business is conducted.
- If the registration certificate lists more than one place of business, the records and accounting for each location should be kept at the relevant workplaces.
- A business owner should ensure that they have a proper backup of the documents and accounts if they decide to maintain them in an electronic format so that it is feasible to produce the records/accounts as and when required.
- A business must audit when its annual revenue reaches the set financial threshold.
Also Read: Know The GST Rates And SAC Codes Of Different Services
What are the Records that are to be Maintained Under GST?
Registered business owners must maintain the following records for GST accounting:
- Manufactured goods: Information on all products that the taxpayer made or manufactured.
- Purchase details through purchase entry with GST: Information on all purchases made by the taxpayer, including the supplier’s name and address.
- Sales information: Information on all sales made by the taxpayer, including the name and address of the buyer.
- Inventory: The current market value of the goods listed under the taxpayer’s inventory
- Input Tax Credit (ITC) availed: This is the record of ITC availed when purchasing equipment, raw materials and/or other capital assets.
- Output tax payable: This is the output tax payable post the sale of finished goods and services.
- Output tax paid: Payment made for GST via cash or by availing ITC.
Any other records (if applicable) — Any additional records needed by the Government for a certain type of business need to be maintained, such as
- Imported or exported goods and services;
- Along with the necessary documents, such as invoices, challans, supply bill, credit and/or debit notes, receipt, payment or refund vouchers, along with e-way bills, inward and outward supplies that are subject to the payment of tax on reverse charge (wherein the recipient is liable to pay the GST instead of the supplier).
What are the Accounts that are to be Maintained Under GST?
Under GST accounting, every business owner should maintain the following accounts:
- Stock accounts for the goods that are bought and sold. The opening balance, quantity of goods received and supplied, the number of items that were lost, stolen, destroyed, or written off as gifts or free samples, and the remaining stock of raw material, scrap and wastage, and finished goods should all be included in this account.
- Account of advances paid and received, with adjustments as applicable.
- The account of tax amounts, which includes information about the tax due, the tax paid, input tax, input tax credit (ITC) claimed (along with a tax invoice as proof), credit note, debit note, and the delivery challan (received or issued in a particular tax period).
- Supplier information, which includes the name and address of the supplier from whom you purchased taxable goods or services.
- The recipient’s information includes the buyer’s name and address who received the goods or services.
- The address of the garage, warehouse, or other location where the goods are stored. This comprises the details of the stock stored there and the items stored during transit.
- Monthly production accounts, which provide the following quantitative information:
- Raw materials used in manufacturing
- Goods that are manufactured
- By-products and waste obtained in the process of production
- Accounts that include quantitative information about the goods used in the providing services, input services used, and the services supplied.
To be noted: The GST Commissioner has the authority to inform business owners to keep additional accounts or records for a particular reason or to keep the accounts prescribed.
Input tax and Output tax in GST
The GST is calculated on purchasing and selling goods and services and is categorised into input GST and output GST.
When goods/services are purchased, the GST paid on it is known as input GST. In the case of intrastate, i.e., within the state purchase of goods and services, the GST paid on it is accounted as input CGST and input SGST.
In the case of interstate purchase of goods or imports, i.e., across the state purchase, the GST transaction is accounted as input IGST.
For example
- Raj, a dealer from Maharashtra purchased Rs. 5000 worth of pencils from Aman, who is also a dealer in Maharashtra, in March 2020. The tax applicable on this transaction stands at 18% GST.
Here, GST payable = 9% CGST + 9% SGST
= 5000*9% + 5000*9%
= 450 + 450
= Rs. 900
The journal entry in the books of Raj will be as follows:
| Date | Particulars | Debit | Credit |
| 28th March, 2020 | Purchases A/c Dr. Input CGST A/c Dr. Input SGST A/c Dr. | 5000 450 450 | |
| To Aman A/c (Purchased pencils from Aman @ 18% GST) | 5900 |
- Raj, a dealer from Maharashtra, purchased Rs. 5000 worth of pencils from Kamal, a dealer in Telangana, in March 2020. The tax applicable on this transaction stands at 18% GST.
Here, GST payable = 18% IGST
= 5000*18%
= Rs. 900
The journal entry in the books of Raj will be as follows:
| Date | Particulars | Debit | Credit |
| 28th March, 2020 | Purchases A/c Dr. Input IGST A/c Dr. | 5000 900 | |
| To Aman A/c (Purchased pencils from Kamal @ 18% GST) | 5900 |
On the other hand, if any goods/services are sold, the GST collected on it is called output GST. In the case of intrastate sales, the GST collected on it is accounted for as output CGST and output SGST.
Whereas in the case of interstate sales or exports, the GST collected on it is accounted as output IGST.
To understand this better, let us take Raj’s example forward.
Assume that he sells his products worth Rs. 50,000 to Amy, a registered dealer in Maharashtra. GST is charged at 18% (9% CGST and 9% SGST). Here, output GST will be payable on the transaction. This is calculated as:
GST payable = 9% CGST + 9% SGST
= 50000*9% + 50000*9%
= 4500 + 4500
= Rs.9000
The journal entry in the books Raj will be as follows:
| Date | Particulars | Debit | Credit |
| 28th March, 2020 | Amy A/c Dr. | 59000 | |
To Sales A/c To Output CGST A/c To Output SGST A/c (Sold products to Amy @ 18% GST) | 50000 4500 4500 | ||
Next, Raj also sells his products worth Rs. 50,000 to Mona, a dealer in Rajasthan. The GST is charged at 18%. Here, output IGST will be applicable to the transaction. This can be calculated as:
GST payable = 18% IGST
= 50000*18%
= Rs.9000
The journal entry in the books of Raj will be as follows:
| Date | Particulars | Debit | Credit |
| 28th March, 2020 | Mona A/C Dr. | 59000 | |
| To Sales A/c To Output IGST A/C (Sold products to Mona @ 18% GST) | 50000 9000 | ||
We can compute the overall tax liability of Raj in the following manner:
Input CGST = 450
Output CGST = 4500
Net CGST = 4500 – 450 = 4050
Input SGST = Rs.450
Output SGST = Rs.4500
Net IGST = 4500 – 450 = Rs.4050
Input IGST = Rs.900
Output IGST = Rs.9000
Net IGST = 9000 – 900 = Rs.8100
Total tax liability = 4050 + 4050 + 8100 = Rs.16,200
3 Different Ledgers under GST
An electronic passbook for GST is known as an e-Ledger. Under the GST, each registered taxpayer will have three digital ledgers that will be created automatically at the time of registration. These are updated and maintained electronically. The 3 types of ledgers are given as follows:
a. Electronic Cash Ledger
The taxpayer deposits money into this ledger, which is an electronic wallet and is used to make payments.
b. Electronic Credit Ledger
The ITC (Input Tax Credit) on purchases will be shown in this ledger under 3 categories i.e., CGST, SGST, and IGST. The balance shown in this account can only be used to pay tax by the taxpayer (not for any other payments such as interest, penalty, etc.)
c. E-Liability Ledger
This ledger displays taxpayers’ total tax liability after netting off for the particular month. This ledger is updated automatically.
Retention Period under GST
The GST Act requires every registered taxable person to retain the accounting books and records for at least 6 years (or 72 months). The period will be counted after the last filing of the annual return for that year. You must file GST return by December 31 of the following year.
For the years 2019-2020, the annual return must be filed before 31.12.2020. The books and records for 2019-20 must be maintained for six years after the due date till 31.12.2026.
Suppose the taxpayer is a part of any proceedings before any authority (First Appellate) and/or is under investigation. In that case, the books must be maintained for 1 year after the order of such proceedings is passed.
Important things to Remember about GST Accounting
When a taxpayer is unable to keep accurate records pertaining to goods or services, the proper officer is required to treat any unaccounted goods or services as though the taxpayer had supplied them.
The tax liability on such unaccounted goods will be determined by the officer after going through the GST reports and the person is obligated to pay the tax liability and penalty so determined.
Also Read: Understanding E-Invoicing Under GST: Meaning, Benefits and Documents Required
Final Word
India is among the fastest-growing economies globally in terms of growth in business opportunities, entrepreneurial ventures, and so on. With the growth in business ventures, it is now much easier to access business loans, however, changes in the regulations always cause ripples across industries.
GST has replaced several indirect taxes, which were a part of the previous tax regime thereby injecting efficiency into the system and bringing in convenience in terms of maintenance of accounts and records.
It is important for the accounting entries under GST to be understood and passed through the accounting department. One must ensure to maintain accurate records pertaining to the goods and/or services bought or sold so as to avoid penalties and make the GST accounting and filing process hassle-free.
FAQs
Ans. Input and output supplies, inventory, production, input credit, output tax, and import-export are among the few accounts to be maintained under the GST regime.
Ans. There are several entries such as purchase and sale transactions, adjustment of Input Tax Credit (ITC) Against Output Tax Liability of GST, reverse charge transaction and exports and imports of goods and services.
Ans, 6 years or 72 months is the retention period for books and records under GST.
Ans. Yes, penalties are charged as determined by the proper officer with regard to unaccounted goods or services.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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