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Goods and service tax or GST subsumed most of the indirect taxes. It has brought us to the “One nation one tax” regime.
Accounting under GST is more simple compared to the erstwhile VAT and excise. However, one must understand and pass
accounting entries in the books of accounts regularly. Learn about the different accounting entries that need to be passed under
GST.
For example, a trader Mr. X had to maintain the minimum basic accounts –
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Service tax a/c [He would not be able to claim any service tax input credit as he is a trader with output VAT. Service tax
cannot be setoff against VAT/CST]
GST Regime
Under GST all these taxes (excise, VAT, service tax) are subsumed into one account.
The same trader X has to then maintain the following accounts (apart from accounts like purchase, sales, stock) –
While the number of accounts is more apparently, once you go through the accounting you will find it is much easier for record
keeping. One of the biggest advantages X will have is that he can setoff his input tax on service with his output tax on sale.
Example 1: Intra-state
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Thus due to input tax credit, tax liability of Rs. 24,000 is reduced to only Rs.5,280. Also, GST on legal fees can be used for set
off against the GST payable on goods sold, which was not possible in current tax regime.
If there had been any input tax credit left it would have been carried forward to the next year.
Example 2: Inter-state
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CGST 1,360
SGST 1,360
Any IGST credit will first be applied to set off IGST and then CGST. Balance if any will be applied to setoff SGST.
So out of total input IGST of Rs. 24,000, firstly it will be completely setoff against IGST. Then balance Rs.8,000 against CGST.
From the total Rs.40,000, only Rs. 13,280 is payable.
So the setoff entries will be-
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4 Final payment
Purchases XXX
Depreciation XXX
Balance Sheet
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Effective cost of fixed assets will come down as input credit will be available on both capital goods and services related to such
goods like installation, inspection etc.
Tax payable and credit receivable will face changes too. There will be only three accounts under each of them- SGST, CGST,
IGST instead of maintaining current excise payable, CENVAT credit, VAT payable, VAT credit, Service tax accounts.
Accounting principles
GAAP is applicable mandatorily on GST. So, all principles following revenue recognition etc. will be applicable.
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.
Every GSTIN can now access the GST Health Check tool (https://cleartax.in/s/gst-health-check) to get the following result in an
excel form:
Try out the GST health check (https://cleartax.in/s/gst-health-check) tool and check your GSTIN’s health now!
Accounting entries for amendments, credit/debit notes and rectification for mismatches (https://cleartax.in/s/gst-accounting-
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