Goods and Services Tax or GST has been used for many indirect taxes. This brings us to the concept of One Nation, One Tax. Accounting under GST is easier compared to previous year’s VAT and deductions. 

However, it is important to understand that there is always going to be an accounting check in the accounting book. It is important to ensure that there is little or no discrepancy between the accounts and GST returns, such as GSTR-1, GSTR-2B, and GSTR-3B. This will further help in correct and quick preparation of annual accounts for filing GSTR-9 for the financial year. Learn more about the various accounting entries that must be made under GST in this article.

Keep in mind that many of these entries can be confusing because there are many terms and conditions that apply to each type of entry, as you will see below. To make this as easy as possible, it is important to use good GST Accounting Software that provides important features like GST agreement and GSTIN support right out of the box. This will save you a lot of headaches and heartache when filing your taxes.

Forms and examples of accounting entries under GST 

Intrastate commerce 

Let’s say Anirudh bought a pencil worth Rs. 50,000 from a GST registered dealer in his state. The purchase tax is 18%, which is divided into CGST (9%) and SGST (9%). So he pays tax of Rs. 9,000 (18% of Rs. 50,000) divided equally between CGST (Rs. 4,500) and SGST (Rs. 4,500). He can avail this amount as input tax credit while deducting his input tax liability. Now he sells the pen to another GST registered dealer for Rs. 80. His tax liability will be 18% of Rs. 80,000, for a total of Rs. and output SGST. Suppose he paid a legal advisory fee of Rs. 2,500 to his CA by cheque. The tax payable on this will include CGST of Rs 225 (9% of 2,500) and SGST of Rs 225 (9% of 2,500). He also gave Rs.5,000 to buy a box and other things to store the pencils. The same tax rate applies here, so he pays CGST of Rs. 450 (9% of 5,000) and SGST of Rs. 450 (9% of 5,000). Anirudh’s Tax Bill 

 

Now let’s see how Anirudh’s total tax is calculated.

 

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

Total input SGST = 4500 + 225 + 450 = 5175 

Total production CGST = 7,200 

Total SGST = 7,200 

Net CGST payable = CGST at exit – CGST at input = 7,200 – 5,175 = 2,025 

Net SGST Payable = SGST Deduction – SGST Input = 7,200 – 5,175 = 2,025 

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

If any ITC will remain with Anirudh after clearing his tax liability, it will be carried over to the next year.

Interstate commerce 

Let’s say Anirudh bought a pencil worth Rs. 15,000 from a GST registered dealer outside his state. The sales tax is 18%. So he pays IGST of Rs. 2,700 (18% of 15,000), which he will later use as credit entry.

 

Now he sells some of his pens locally for Rs. 8,000. His exit tax liability will be 18% of Rs. 8,000, for a total of Rs.1,440 which is split between the CGST deduction and the SGST deduction.

 

He sells his remaining pens outside his state for Rs.10,000. The required exit tax for these will be IGST of 18% of Rs. 10,000, which is equivalent to Rs. 1,800.

 

Suppose he paid a legal advisory fee of Rs. 2,000 in the area and its CA by check. The tax payable on this will include CGST of Rs. 180 (9% of 2,000) and SGST of Rs 180 (9% of 2,000).

 

Anirudh’s Tax Bill 

 

Total input SGST = 180 

Total IGST input = 2700 

Total output CGST = 720 

Total SGST = 720 

Total IGST = 1800 

Net CGST payable = CGST at exit – CGST at entry = 720-180 = 540 

Net SGST Payable = SGST Deduction – SGST Input = 720-180 = 540 

An IGST credit of Rs. 2,700 minus the IGST bill of 1,800, leaving Rs. 900 in credit. The remaining rupees. 900 will first be added to the CGST net charge of 540, leaving Rs. 360 in credit.

The remaining Rs. 360 can be added to the net charge of SGST. After all the credits are used, the remaining output tax payable is the SGST amount minus the remaining IGST credit.

Tax to be paid = 540 – 360 = 180