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.

Accounting Treatment Under GST

The Goods and Services Tax (GST) has simplified the indirect system in India with the “one nation, one tax” approach. It has also simplified the business and accounting processes which ensure more transparency in business reporting and compliance.

In the GST regime, a taxpayer is required to maintain all types of accounts and records related to GST transactions such as Input Supplies (Purchase), Output Supplies (Sale), Production, Input Credit, Output Tax, Stock, Import-Export, Reverse charge, etc.

In this article, we will discuss the different types of business transactions related to GST and the journal entries of these transactions in the books of accounts or Accounting Software.

Pre-GST Scenario – Accounting Under VAT, CST, Service Tax, Excise

In the past tax scenario, there were different types of taxes for different business transactions and cross-utilization of input credit was not allowed. Therefore a taxpayer had to maintain separate ledger accounts for every tax law:

Journal Entries Under GST 

1. Purchase Transactions (Input Supplies of Goods or Services)

A.Intra-State Purchase

Purchase A/c _____________ Dr.

CGST Input Credit A/c ____Dr.

SGST Input Credit A/c _______Dr.

To  Creditors A/c

B. Inter-State Purchase

Purchase A/c _____________ Dr.

IGST Input Credit A/c _______Dr.

To  Creditors A/c

2. Sale Transactions (Outward Supplies of Goods and Services)

A. Intra-State Supplies

Debtors A/c _____________Dr.

To Sales A/c

To CGST Payable A/c

To SGST Payable A/c

B. Inter-State Supplies

Debtors A/c _____________Dr.

To Sales A/c

To IGST Payable A/c

3. Set Off of Input Credit Against Out Tax Liability of GST

Under the GST law, the set-off of input credit is allowed in the following order:-

GST Set Off Chart

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.

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