What is GST accounting?
GST accounting involves managing the financial records of Goods and Services Tax (GST) transactions. GST is a comprehensive indirect tax levied on the supply of goods and services in India. The main objective of GST accounting is to ensure that businesses accurately report their GST liabilities and claim any eligible input tax credits. GST accounting requires meticulous tracking of sales and purchases, with the tax being paid on the supply of goods and services and credits claimed for tax already paid on inputs. Businesses must regularly file GST returns to comply with legal requirements. Proper GST accounting helps in maintaining transparency, ensuring compliance, and avoiding penalties.
Accounting under GST
- IGST (Integrated Goods and Services Tax): Applied on inter-state supplies of goods and services, IGST is collected by the central government.
- CGST (Central Goods and Services Tax): Levied on intra-state supplies of goods and services, CGST is collected by the central government.
- SGST (State Goods and Services Tax): Also applicable on intra-state supplies, SGST is collected by the state government.
Businesses need to record these taxes accurately to ensure proper compliance with GST laws. Each type of GST affects the accounting entries differently based on the nature of the supply.
Understanding applicable tax types also requires knowledge of your state's specific GST code, which can be found using the GST State Code list.
Accounting entries under GST
| Transaction Type | Debit | Credit |
| Sale of goods (IGST) | Accounts Receivable | Sales Revenue |
| Sale of goods (CGST + SGST) | Accounts Receivable | Sales Revenue |
| Purchase of goods (IGST) | Purchases | Accounts Payable |
| Purchase of goods (CGST + SGST) | Purchases | Accounts Payable |
Proper accounting entries under GST ensure accurate financial reporting and compliance with tax regulations.
Accounts required to be maintained under GST
- Sales register: Record details of all sales, including the type of GST applicable.
- Purchase register: Track all purchases and corresponding GST credits.
- Input Tax Credit (ITC) Register: Maintain records of GST credits claimed on inputs.
- GST returns: Ensure all GST returns are filed accurately and on time.
- Invoices: Keep copies of all GST invoices issued and received for verification.
GST accounting basis
| Basis | Description |
| Accrual Basis | Income and expenses are recorded when they are incurred, regardless of when payment is made. |
| Cash Basis | Income and expenses are recorded only when cash is received or paid. |
GST registration influences the basis chosen, affecting how transactions are recorded for GST purposes.
How to pass accounting entries in GST?
To pass accounting entries in GST, businesses should follow these steps:
- Identify the nature of the transaction: Determine if the transaction is subject to IGST, CGST, or SGST.
- Record sales: Debit Accounts Receivable and credit Sales Revenue, noting the applicable GST.
- Record purchases: Debit Purchases and credit Accounts Payable, incorporating GST credits.
- Reconcile accounts: Regularly reconcile GST ledgers with tax returns to ensure accuracy.
Here is an example to understand accounting entries under GST:
Mr. X buys products worth Rs. 10,000 from a local market, then sells them for Rs. 30,000. He pays a consultation fee of Rs. 500 and buys furniture for Rs. 10,000 for his business. Assume SGST and CGST rates of 10% each.
The accounting entries will be:
S. No. |
Particulars |
Debit (Rs.) |
Credit (Rs.) |
1. |
Purchase account |
10,000 |
|
|
CGST input account |
1000 |
|
|
SGST input account |
1000 |
|
|
To creditors account |
|
12,000 |
2. |
Debtors account |
36,000 |
|
|
To sales account |
|
30,000 |
|
To output CGST account |
|
3000 |
|
To output SGST account |
|
3000 |
3. |
Consultation fee account |
500 |
|
|
CGST input account |
50 |
|
|
SGST input account |
50 |
|
|
To bank account |
|
600 |
4. |
Furniture account |
10,000 |
|
|
CGST input account |
1000 |
|
|
SGST input account |
1000 |
|
|
To furniture account |
|
12,000 |
By GST accounting entries:
Total input SGST = 1000 + 50 + 1000 = Rs. 2050
Total output SGST = Rs. 3000
Total input CGST = 1000 + 50 + 1000 = Rs. 2050
Total output CGST = Rs. 3000
Hence,
Net SGST to be paid = 3000 – 2050 = Rs. 950
Net CGST to be paid = 3000 – 2050 = Rs. 950GST accouting: How to maintain accounts and records?
Maintaining accounts and records under GST involves:
- Tracking transactions: Regularly update sales and purchase records with GST details.
- Recording GST inputs and outputs: Document input tax credits and GST liabilities precisely.
- Filing GST returns: Ensure timely and accurate filing of GST returns to avoid penalties.
- Maintaining supporting documents: Keep all invoices, receipts, and contracts related to GST transactions.
Proper record-keeping simplifies compliance and auditing processes.
You can also use the online GST Calculator to simplify tax computations based on transaction value and applicable rates.
GST accounting and reconciliation for small businesses
For small businesses, GST accounting and reconciliation involve:
- Simplified record-keeping: Maintain essential records such as sales and purchase registers with GST details.
- Regular reconciliation: Match GST returns with books of accounts to identify and rectify discrepancies.
- Timely filing: Ensure that GST returns are filed promptly to avoid penalties.
- Consultation: Seek professional advice if needed, especially when dealing with complex transactions or reconciliations.
Conclusion
GST accounting is fundamental for ensuring compliance with tax regulations. Proper management of GST involves accurate record-keeping, timely filing of returns, and regular reconciliation of accounts. For small businesses, this can be challenging, but effective accounting practices and professional guidance can simplify the process. Additionally, businesses may explore options like Bajaj Finserv Business Loan to support their financial management and GST obligations. Adhering to GST requirements not only ensures legal compliance but also contributes to a smooth financial operation.
