Accounting entries under GST
How to pass accounting entries in GST
Let us consider a few basic business transactions (all amounts excluding GST)-
Example 1: Intra-state
1. Mr. X purchased goods Rs. 1,00,000 locally (intrastate)
2. He sold them for Rs. 1,50,000 in the same state
3. He paid legal consultation fees Rs. 5,000
4. He purchased furniture for his office for Rs. 12,000
Assuming CGST @8% and SGST@8%
The entries will be-
1 Purchase A/c ………………Dr. 1,00,000
Input CGST A/c ……………Dr. 8,000
Input SGST A/c ……… …Dr. 8,000
To Creditors A/c 1,16,000
2 Debtors A/c ………………Dr. 1,74,000
To Sales A/c 1,50,000
To Output CGST A/c 12,000
To Output SGST A/c 12,000
3 Legal fees A/c ………..……Dr. 5,000
Input CGST A/c ……………Dr. 400
Input SGST A/c ……………Dr. 400
To Bank A/c 5,800
4 Furniture A/c ………..……Dr. 12,000
Input CGST A/c ……………Dr. 960
Input SGST A/c ……………Dr. 960
To ABC Furniture Shop A/c 13,920
Total Input CGST=8,000+400+960= Rs. 9,360
Total Input SGST=8,000+400+960= Rs. 9,360
Total output CGST=12,000
Total output SGST=12,000
Therefore Net CGST payable=12,000-9,360=2,640
Net SGST payable=12,000-9,360=2,640
5 Output CGST A/c ……………Dr. 12,000
Output SGST A/c ……………Dr. 12,000
To Input CGST A/c 9,360
To Input SGST A/c 9,360
To Electronic Cash Ledger A/c 5,280
Thus due to input tax credit, tax liability of Rs. 24,000 is reduced to only Rs.5,280. Also, GST on legal fees can be used for set off
against the GST payable on goods sold, which was not possible in current tax regime.
If there had been any input tax credit left it would have been carried forward to the next year.
Example 2: Inter-state
1. Mr. X purchased goods Rs. 1,50,000 from outside the State
2. He sold Rs. 1,50,000 locally
3. He sold Rs.1,00,000 outside the state
4. He paid telephone bill Rs. 5,000
5. He purchased an air cooler for his office for Rs. 12,000 (locally)
Assuming CGST @8% and SGST@8%
1 Purchase A/c ………………Dr. 1,50,000
Input IGST A/c ……………Dr. 24,000
To Creditors A/c 1,74,000
2 Debtors A/c ………………Dr. 1,74,000
To Sales A/c 1,50,000
To Output CGST A/c 12,000
To Output SGST A/c 12,000
3 Debtors A/c ………………Dr. 1,16,000
To Sales A/c 1,00,000
To Output IGST A/c 16,000
4 Telephone Expenses A/c ..…Dr. 5,000
Input CGST A/c ………………..Dr. 400
Input SGST A/c …..……………Dr. 400
To Bank A/c 5,800
5 Office Equipment A/c.…..Dr. 12,000
Input CGST A/c ……………Dr. 960
Input SGST A/c ……………Dr. 960
To ABC Furniture Shop A/c 13,920
Total CGST input =400+960=1,360
Total CGST output =12,000
Total SGST input =400+960=1,360
Total SGST output =12,000
Total IGST input =24,000
Total IGST output =16,000
Particulars CGST SGST IGST
Output liability 12,000 12,000 16,000
Less: Input tax credit
IGST 8,000 16,000
CGST 1,360
SGST 1,360
Amount payable 2,640 10,640 NIL
Any IGST credit will first be applied to set off IGST and then CGST. Balance if any will be applied to setoff SGST.
So out of total input IGST of Rs. 24,000, firstly it will be completely setoff against IGST. Then balance Rs.8,000 against CGST.
From the total Rs.40,000, only Rs. 13,280 is payable.
So the setoff entries will be-
Setoff against CGST output
1 Output CGST ………………Dr. 9,360
To Input CGST A/c 1,360
To Input IGST A/c 8,000
2 Setoff against SGST output
Output SGST ………………Dr. 1,360
To Input SGST A/c 1,360
3 Setoff against IGST output
Output IGST ………………Dr. 16,000
To Input IGST A/c 16,000
4 Final payment
Output CGST A/c ……………Dr. 2,640
Output SGST A/c ……………Dr. 10,640
To Electronic Cash Ledger A/c 13,280
GST impact on financials
Profit & Loss Account
Particulars Rs. Particulars Rs.
Raw material consumption XXX [Decrease] Sales XXX***
Purchases XXX
Depreciation XXX
Other Expenses XXX
Reduction in raw material cost and other expenses
GST allows seamless input credits for intrastate and interstate purchases of goods. This will mean reduction in cost of raw
materials as input GST can be setoff against the output GST payable on sales. Also GST paid on many services like legal
consultation, audit fees, engineering consultation etc. can be setoff against output GST. Previously, input credit of service tax paid
could not be adjusted against output excise/VAT.
All this will effectively bring down the expenses.
***Impact on sales may vary depending on the industry and the GST rates.
Balance Sheet
Particulars Rs. Particulars Rs.
Capital XXX Fixed assets XXX [Decrease]
Current liabilities XXX Current assets XXX
Tax payable XXX Credit receivable XXX
Effective cost of fixed assets will come down as input credit will be available on both capital goods and services related to such
goods like installation, inspection etc.
Tax payable and credit receivable will face changes too. There will be only three accounts under each of them- SGST, CGST, IGST
instead of maintaining current excise payable, CENVAT credit, VAT payable, VAT credit, Service tax accounts.
Accounting principles
GAAP is applicable mandatorily on GST. So, all principles following revenue recognition etc. will be applicable.
Period of retention of accounts
Every registered taxable person must keep and maintain books of account for five years from the due date of filing of Annual
Return for the relevant year.
At the end of a financial year, the taxpayer must reconcile the books of accounts with the GST returns filed across the financial
year. On comparing data between books and GST returns, any differences that arise must be adjusted in books or reported in GST
returns filed subsequently. ClearTax offers a FREE integrated tool for GST registered businesses to track and check their
compliance level for GST Returns filed.
Every GSTIN can now access the GST Health Check tool to get the following result in an excel form:
A health check summary
GST returns filing status
GSTR-1 vs GSTR-3B report (tax difference)
GSTR-3B vs GSTR-2A report (ITC difference)
Vendor Compliance report
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