December 26, 2022

GST Accounts & Records

Multiple tax levies have been replaced by a single GST tax under the GST regime. This has resulted in significant changes in the accounts that business owners must keep track of. Previously, you would have kept separate accounts for VAT, excise, CST, and other service taxes, each with its own input, output, and credit entries. The new tax regime has resulted in a whole new set of accounting, which includes GST components. Every company registered under GST must maintain relevant GST accounts and records.

All GST accounts and records must be kept at the principal place of business, or the primary location where the business is conducted, under the GST regime. If the registration certificate specifies more than one place of business, records and accounting for each location should be kept at the appropriate workplaces. If a business owner chooses to keep GST records & accounts in electronic format, they must ensure that the records/accounts are properly backed up. They should also be able to produce the GST records & accounts if necessary. When a company's turnover crosses a certain financial threshold, the company is subject to an audit.

Prerequisites for maintaining GST accounts and records

The maintenance of GST accounts & records is handled by:

The business owner or operator of the storage facility:

They should keep track of the amount of time the products were in the facility (example: warehouse). This comprises information on goods dispatch, movement, receipt, and disposal.

The carrier of products and services:

They should keep track of the goods that they transport, deliver, and store in transit.

Maintaining accounts and records under the GST regime:

Stock accounting for products purchased and sold. This account should include all relevant information, such as the opening balance, the amount of goods received and supplied, the amount of goods lost/stolen/destroyed/written off as gifts or free samples, the balance stock of raw materials, finished goods, scrap, and wastage, and the balance stock of raw materials, finished goods, scrap, and wastage.

Account for advances received and paid, as well as any changes. Details of tax payable, tax collected and paid input tax, input tax credit claimed (together with a tax invoice as proof), credit note, debit note, and delivery challan are all included in the account of tax amounts (issued or received during a particular tax period).

Supplier information includes the name and address of the vendor from whom taxable goods or services are acquired. The name and address of the buyer to whom goods/services were provided are included in the recipient details. The location of the warehouse/garage or any other location where the items are kept. This includes products stored in transit as well as information on the stock on hand at the time. Monthly production accounts, in which the following quantitative facts are provided: raw resources for manufacturing items, as well as waste and by-products produced throughout the manufacturing process.

Note: The Commissioner of GST also has the authority to notify business owners that they must keep additional accounts/documents for a specific purpose or that they must keep the accounts in a specified manner.

GST Accounts

Input and Output in GST

The concept of Input Tax Credit is the most significant shift that GST brings to the table. You can utilize the tax you pay on your inputs (goods or services used to help your business) to offset the tax you'll pay on your outputs (finished products or services). GST's dual-component structure is another development. The tax on intrastate transactions is split into two parts: CGST (Central GST) and SGST (State GST), which must be paid to the state. If the transaction is across states, the IGST (Integrated GST) must be paid to the federal government. A registered business owner is required to keep the following accounts as a result of these regulations:

1. Input CGST A/c

2. Output CGST A/c

3. Input SGST A/c

4. Output SGST A/c

5. Input IGST A/c

6. Output IGST A/c

Electronic cash ledger for GST accounts and records

GST also introduces a concept called electronic ledgers. Once you register for GST in the Government portal, you will get access to 3 types of electronic ledgers:

The E-cash ledger acts as an e-wallet for the taxpayer, allowing them to make payments such as taxes, interest, and penalties. If a taxpayer does not have enough money in their account to make a specific payment, they can simply recharge it online.

The input tax credit retrieved from the taxpayer's monthly returns will be stored in the E-credit ledger. There will be three sorts of credits: CGST, SGST, and IGST. This money can only be used to pay taxes, and it can't be used for anything else.

The taxpayer's overall tax liability for a given month will be recorded in the E-liability ledger. This will be displayed on the taxpayer's GST dashboard by default.

How to pass your accounting entries

Let’s now consider a sample transaction and observe how the entries need to be made in the taxpayer’s different accounts.

Intrastate transaction:

Let's say Raj purchased pens worth Rs. 50,000 from a GST-registered dealer within his state. The tax applicable to his purchase is 18%, which is broken down into CGST (9%) and SGST (9%). Thus, he pays a total tax of Rs. 9,000 (18% of Rs. 50,000) which is split equally between CGST (Rs. 4,500) and SGST (Rs. 4,500). He can later claim this amount as an input tax credit when he has to offset his output tax liabilities.

ITEMS                                      ACCOUNT NAME                                DEBIT                                                CREDIT                                                                                                                                                    

PENS                                       Purchase A/c Rs. 50,000                         Input CGST A/c‚Çπ 4,500                   To Creditors A/c Rs. 59,000                                                                             

                                                                                                             Input SGST A/c‚Çπ 4,500                                                                                                                                                                        

He now sells the pens to another GST-registered dealer for Rs. 80,000. His output tax liability will be 18% of Rs. 80,000, for a total of Rs. 14,400 that is split up equally between output CGST and output SGST.

ITEMS                                       ACCOUNT NAME                               DEBIT                                   CREDIT                                                                                                                                                    

PENS                                        Debtors A/c‚Çπ 94,400                                                                       To Sales A/c‚Çπ 80,000                                                                                                                                                                                                                                                          To Output CGST A/c‚Çπ 7,200                                                                                                                                                                                                                                                                                                                                            To Output SGST  A/c‚Çπ 7,200                                                                        

Let’s assume he paid a legal consultation fee of Rs. 2,500 to his CA by cheque. The tax he pays on this will include CGST of Rs. 225 (9% of 2,500) and SGST of Rs. 225 (9% of 2,500).

ACCOUNT  NAME                     DEBIT                                                       CREDIT                                                                                                                                                                                                                                                      

                                                   Consultation fees A/c‚Çπ 2,500                 To bank A/c‚Çπ 2,950   

                                                   Input CGST A/c‚Çπ 225                                                                                                

                                                  Input SGST A/c‚Çπ 225                                                                                                                                                                      

He also paid Rs. 5,000 to purchase the boxes and other materials used for storing the pens. The same tax rates apply here, so he pays CGST of Rs. 450 (9% of 5,000) and SGST of Rs. 450 (9% of 5,000).

ITEMS                   ACCOUNT NAME                 DEBIT                                                        CREDIT                                                                                                                                                    

BOXES                                                                Storage Costs  A/c‚Çπ 5,000                      To Storage Box Supplier's A/c5,900                      

                                                                            Storage Costs  A/c‚Çπ 450

                                                                             Input SGST A/c‚Çπ 450


Raj’s total tax liability

Let’s now observe how Raj’s total tax payable is calculated.

1. Total input CGST = 4,500 + 225 + 450 = 5,175

2. Total input SGST = 4,500 + 225 + 450 = 5,175

3. Total output CGST = 7,200

4. Total output SGST = 7,200

5. Net CGST payable = Output CGST - Input CGST = 7,200 - 5,175 = 2,025

6. Net SGST payable = Output SGST - Input SGST = 7,200 - 5,175 = 2,025

Total tax payable = 2,025 + 2,025 = 4,050

If Raj has any ITC left after paying his tax obligations, it will be carried over to the next year.

Retention period

Every registered taxable person must keep their book of accounts for at least 6 years after the last date of submitting the relevant annual return, according to GST law. The registration certificate specifies that these records and documents be kept at all relevant business locations.

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