written by | May 25, 2022

How to Pass Accounting Entries Under GST?

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Table of Content


The goods and services tax, generally known as the GST, was implemented to replace the majority of indirect taxes in India. In India, we currently have a system known as "One Tax, One Nation." 

However, the regular GST accounting entries in accounts must be understood and passed through to the accounting department. If you are filing GST returns, such as GSTR-1, and GSTR-2B, it is critical to ensure as few conflicts as possible between your books of accounts and your GST reports. The proper and timely reconciliation of accounts in preparation for the GSTR9 filing for the fiscal year will be made easier.

Did you know?

A company having pan-India operations will have to furnish more than 1000 returns per year under GST.

GST Accounting

Excise, VAT, CST, and service tax all need their own set of accounts. In addition, you could not claim the input tax credit for both central and state-imposed taxes. As a result, multiple ledger accounts were required. However, accounting for GST journal entries has eliminated the necessity for several ledger accounts, reducing the number to just a handful.

In addition to the accounts like stock, sales, and purchase journal entries with GST had to keep only a few ledger accounts under the former regime:

  • Excise payable a/c (for manufacturers)
  • CENVAT credit a/c (for manufacturers)
  • Output VAT a/c
  • Input VAT a/c
  • Input Service tax a/c
  • Output Service tax a/c

Also Read: GST Billing Software Return Filing & Accounting Software

For example, a trader named Mr Rajesh is required to keep the following basic ledger accounts:

  • Output VAT a/c
  • Input VAT a/c
  • CST A/c (for inter-state sales and purchases)
  • Account for service tax

 

Accounting Under the GST Regime

Previously separate indirect taxes, VAT, and service tax are now combined under GST. For each GST Number (GSTIN), the same trader, Mr Rajesh, must keep the following accounts:

  • Input CGST a/c
  • Output CGST a/c
  • Input SGST a/c
  • Output SGST a/c
  • Input IGST a/c
  • Output IGST a/c
  • Input Cess a/c
  • Output Cess a/c
  • Electronic Cash Ledger (to be kept up to date on the government's GST portal in order to deposit and pay GST in cash)

After accounting for GST journal entries and understanding their work, it will be much easier for you to maintain track of your data. When Mr Rajesh can deduct his input tax on services from his output tax on sales of products, he will reap significant financial benefits.

Every business owner must keep track of the following accounts:

  • A stock account that keeps track of the things that have been bought and sold. Among the information in this account should be the opening balance, the number of products received and delivered, the balance stock of raw materials and finished goods, scrap and wastage, and any other information relevant to the business.
  • Records of any loans made and received, as well as records of any payments made and received. 
  • The tax account contains data on taxes owed, taxes collected, input tax, and tax credits claimed. Details about the provider, such as the supplier's name and address, are required from whom the taxable goods or services were purchased.
  • Identifying information about the recipient, such as the buyer's name and address and the products or services delivered.

It is necessary to provide a warehouse or garage or any other location where the items will be kept. Commodities in transit and information about the stock that was accessible at the time are included in this category.

Monthly accounts contain the quantitative information as follows:

  • Creating raw materials for the manufacturing industry
  • Manufactured products are items that have been created by hand.

The accounts must include quantitative information on things that were utilised in the provision of services and information on input services that were used and services supplied.

How to Pass Accounting Entries Under GST?

While calculating in your books of accounts, each type of GST: CGST, SGST, and IGST, is treated differently. To understand how to pass input GST and output GST, let's look at some sample data.

Assume Puneet spent ₹ 1,00,000 on cane chairs from a GST-registered vendor in his state. The tax on his purchase is 18%, divided into CGST (9%) and SGST (9%). As a result, he pays a total tax of ₹ 18,000 (18% of ₹ 1,00,000), split evenly between CGST (₹ 9,000) and SGST (₹ 9,000). He can claim this amount as an input tax credit when he has to offset his output tax duties.

ITEM

ACCOUNT

DR

CR

Cane Chairs

Purchase A/c

₹ 1,00,000

 

 

Input CGST A/c

₹ 9,000

 

 

Input SGST

₹ 9,000

 

 

To Creditors A/c

 

₹ 1,18,000

When a person sells these chairs to another GST-registered vendor, the transaction will be recorded under Sales A/c, and the CGST and SGST submitted will be for the output tax owed. In this instance, creditors will eventually become debtors.

To clarify, CGST and SGST are charged as input taxes when goods and services are purchased, while output taxes are imposed when goods and services are sold. Thus, subtract Output and Input GST, the net CGST and net SGST.

Net CGST payable = Output CGST – Input CGST

Net SGST payable = Output SGST – Input SGST

Assume Puneet spent ₹ 1,00,000 on cane chairs from a GST-registered vendor outside his jurisdiction. His transaction is subject to an 18% tax rate. As a result, he pays ₹ 18,000 in IGST (18% of ₹ 1,00,000) that he can subsequently use as input credit.

Also Read: GST Software: Your Best Friend for Tax Season

ITEM

ACCOUNT

DR

CR

Cane Chairs

Debtors A/c

₹ 94,400

 

 

To Sales A/c

 

₹ 80,000

 

To Output CGST A/c

 

₹ 7,200

 

To Output SGST A/c

 

₹ 7,200

His surviving chairs are sold for ₹ 50,000 outside of his state. An IGST of 18% of ₹ 50,000, or ₹ 9000, will be the output tax due for these.

ITEM

ACCOUNT

DR

CR

Cane Chairs

Debtors A/c

₹ 59,000

 

 

To Sales A/c

 

₹ 50,000

 

To Output CGST A/c

 

₹ 9,000

From the due date of submitting the annual return for the relevant year, every registered taxable person shall retain and maintain books of account for 5 years. The taxpayer must reconcile the books of accounts with the GST returns filed throughout the financial year at the end of the fiscal year. When comparing data between books and input and output in GST returns, any discrepancies must be corrected in the books or disclosed in subsequent GST forms.

Conclusion

The goods and services tax (GST) was implemented in India on July 1st. As a result, the GST Council has been trying to simplify the rules to make doing business easier, and streamlined GST inputs help us understand transactions more straightforwardly. In India, the Customs and Excise Act is a comprehensive, multi-category tax on all value additions tax-deductible to the extent allowed by law. The GST journal entry and the purchase entry with GST or the sales entry with GST are the same.

Do you have issues with payment management and GST? Install the Khatabook App, a friend-in-need and one-stop solution for all issues related to income-tax or GST filing, employee management and more. Try it today!

FAQs

Q: What is the GST liability ledger, and how does it work?

Ans:

Finally, the computerised liability ledger displays the amount of tax that the registered taxpayer is responsible for, along with the input and output GST entry. The information contained in this ledger pertains to the GST liability. Specifically, it demonstrates how the GST liability was offset, namely, through cash or credit transactions.

Q: How do you handle the goods and services tax (GST) in accounting?

Ans:

Under the goods and services tax (GST) law, every registered taxable person must keep their books of GST accounting entry for at least 6 years following the date on which the relevant annual return was filed. You should keep these records and documentation on file at all of the business locations listed on the registration certificate, including the primary site.

Q: What is the best way to pass a GST journal entry?

Ans:

According to the computations, the balances of output are transferred to the amount of utilisation. Debit, the closing balance of the user account, is transferred to the GST input account. The remaining balance in the output accounts will be moved to the GST payable account for GST payments.

Q: What is the accounting entry for the goods and services tax?

Ans:

These formerly separate indirect taxes, such as excise, VAT, and service tax, are now combined into a single account under the GST regime. Therefore, the same trader, Mr Rajesh, must maintain the accounts for each GST number and input and output GST details.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.