The introduction of the biggest indirect taxation reform in India namely Goods and Services Tax (GST) has impacted the functioning of all the sectors of the economy. The impact of the radical shift can also be tracked in the segment of Finance and Accounting as well. Prior to the introduction of GST in India Separate accounting entries for each indirect tax law like service tax, excise, VAT etc was required to be made separately. Now only entries under the goods and services tax are required to be taken on record for either supply of goods or services.
Read below to understand the changes that a person is required to perform in his normal working for getting the final accounts updated with the present ruling of the acts.
What new needs to be done in accounting for GST?
Earlier different accounts were required for the accounting of different taxes such as VAT, CST, CENVAT, Excise duty, Various Countervailing duties etc.
However, under the New GST regime, the different taxes have been subsumed in GST. So the number of accounts required to be created has reduced drastically. Now the business has to maintain the Accounts under three major heads that are:
CGST,
SGST and
IGST
A separate account is required under each head for differentiating the tax paid on inputs and tax received on output. Such a treatment enables the business to ascertain the amount of Input GST and Output GST separately. The separate treatment will enable the business to determine easily the amount of tax liability. He is required to pay under GST and the amount that is available for him to take credit.
Major accounts to be created under GST
So the major accounts that are required to be created under GST for accounting purpose are as follows:
For making the payment, an additional account is required to be created as Electronic Cash Ledger which is to be maintained on GST portal and used for paying the tax liability.
Now let’s understand these accounts with the help of an example:
Mr. Harish a Cement dealer has done some transaction in the month of April 2019 and requires to ascertain his tax liability and the entries needed to be done in books of accounts. The transactions are as follows:
Purchases cement from the local registered manufacturer for ?150000.
Purchases cement from a dealer registered outside his state for ?70000.
Purchase of materials and packing bags for ? 40000.
Sale within the state amounted to ?100000.
Sale made outside the state amounted to ?60000.
Paid legal consultation fee to a CA an amount of ? 20000.
The GST rate applicable to Cement is 28% and the same for the packaging material. Moreover, for the professional fee, the rate is 18%
Purchases A/c | Dr. | 150000 |
|
Input SGST 14% A/c | Dr. | 21000 |
|
Input CGST 14% A/c | Dr. | 21000 |
|
To Creditors/Bank |
|
| 192000 |
| |||
Purchases A/c | Dr. | 70000 |
|
Input IGST 28% A/c | Dr. | 19600 |
|
To Creditors/ Bank A/c |
|
| 89600 |
| |||
Packaging Material A/c | Dr. | 40000 |
|
Input SGST 14% A/c | Dr. | 5600 |
|
Input CGST 14% A/c | Dr. | 5600 |
|
To Creditors/ Bank A/c |
|
| 51200 |
| |||
Debtors/ Bank A/c | Dr. | 128000 |
|
To Sales A/c |
|
| 100000 |
To Output SGST 14% A/c |
|
| 14000 |
To Output CGST 14% A/c |
|
| 14000 |
| |||
Debtors/ Bank A/c | Dr. | 76800 |
|
To Sales A/c |
|
| 60000 |
To Output IGST 28% A/c |
|
| 16800 |
| |||
Legal Consultation Fee A/c | Dr. | 20000 |
|
Input SGST 9% A/c | Dr. | 1800 |
|
Input CGST 9% A/c | Dr. | 1800 |
|
To Bank A/c |
|
| 23600 |
The total amount of Tax under different categories are as follows:
Total Input IGST is ?19600
Total Input SGST is ?28400
Total Input CGST is ?28400
Total Output IGST is ?16800
Total Output SGST is ?14000
Total Output CGST is ?14000
The credit of input tax can be claimed as follows:
Input Tax | Set off Against |
First for IGST then CGST | |
SGST | First for IGST then SGST |
IGST | First IGST then CGST followed by SGST |
The credit can be allocated as specified in the table
Particulars | Credit Available | CGST | SGST | IGST | Balance Credit Left |
Output Tax |
| 14000 | 14000 | 16800 |
|
Less: Input Tax |
|
|
|
|
|
IGST | 19600 | 2800 |
| 16800 | NIL |
CGST | 28400 | 11200 |
|
| 17200 |
SGST | 28400 |
| 14000 |
| 14400 |
Net Tax payable |
| Nil | Nil | Nil |
|
The Extra Input Tax can be carried forward or can be claimed as a refund.
The accounting entries for setting off the Tax liabilities with credit is as follows:
Output IGST A/c | Dr. | 16800 |
To Input IGST A/c | 16800 | |
Output CGST A/c | Dr. | 14000 |
To Input IGST A/c | 2800 | |
To Input CGST A/c | 11200 | |
Output SGST A/c | Dr. | 14000 |
To Input SGST A/c | 14000 |
These are the entries that a person is required to update under the new regime of GST. Besides these, if there is a tax liability than the entry for payment of such tax liability is required to be a pass. The entry for payment is as follows:
Output SGST A/c | Dr. |
Output CGST A/c | Dr. |
Output IGST A/c | Dr. |
To Electronic Cash Ledger A/c |
At the time of filing the annual return GSTR-9, the business is required to reconcile the balance as per the return, and the balance shown in the books of accounts and adjust the books or return accordingly if some error is discovered.
Whether the introduction of GST has actually benefited and eased the procedures in Finance and accounts or it has increased the hardships??This would be a tough thing to be concluded for now. Normally, introduction of any new law or provision is seen negative in the transitional phase. So is the case with GST. The most appropriate thing at the moment would be to let us wait for some more time till GST rolls out in its complete sense in the economy and then analyse the ease or hardship status of the stakeholders.
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