In the new GST era, some major changes are introduced by the Government. One of the major changes is introduction of Electronic Ledger system of GST Portal which shows Taxpayer’s ledger in the books of government. In order to align with the same, some accounting changes are also required in the Taxpayer’s books. This would facilitate to keep taxpayers books in line with the books of government so that there is no mismatch. In order to improve the accuracy of the GST accounting, we will discuss the accounting treatment of GST transaction in this article.
Highlights of Accounting of GST Transaction:
- Accounting of Output Tax Liability:
When the taxpayer filed their GSTR-3B on which basis Electronic Liability Ledger gets updated, it advised that the Liability recorded in the books should be transferred to a new ledger in the books called ‘Electronic Liability Ledger’. It is to be noted that this ledger should exactly match with the Electronic Liability Ledger maintained by the government on the GST Portal. Hence, this ledger should get credited with the liability amount reported in GSTR-3B.
- Availment of GST Input Tax Credit:
The taxpayer shall record its purchases & expenses booking transaction as per ongoing practice. However, while filing GSTR3B, a new ledger should be opened in the books named as ‘Electronic Credit Ledger’. This ledger shall be debited with the amount equivalent to ITC availed in GSTR-3B and Credit by the amount of ITC Utilized to discharge GST Liability. Hence, this ledger will be mirror image of Electronic Credit Ledger appearing on GST Portal. In this process this account will have some credit entries representing ineligible ITC reversals of Sec. 17(5) such as GST on Staff Welfare Expenses, GST on new Car purchases etc.
- Payment of GST through Cash:
When any GST liability is discharged in Cash, first, the taxpayer has to deposit the Cash to GST Portal. Thereafter it will appear in Electronic Cash Ledger. Thus, when the taxpayer deposits cash to the GST portal, a new ledger named as ‘Electronic Cash ledger’ (which is mirror image of Electronic Cash Ledger appearing on GST Portal) should be debited in the books.
For better understanding, I have given below some illustrations of accounting entries to be passed while recording GST transactions. Kindly note that I have given selected transactions to understand the flow of entries. For more details, refer the Handbook issued by the Institute. (Link: https://resource.cdn.icai.org/58894research47986hb.pdf)
Illustrations of the accounting of GST Transactions:
- Entry for Intra- State Inward Supply u/s. 9(3)/(4) of CGST Act
| Particulars | Dr. Amt | Cr. Amt | |
| Dr. | Expenses | 100 | |
| Dr. | CGST/ SGST Interim Credit | 18 | |
| To | Output CGST/SGST (RCM) | 18 | |
| To | Vendor/ Bank | 100 | |
| (Being intra state purchases made along with provision for RCM liability and credit for the same is recognized) | |||
| Dr. | Electronic Cash Ledger CGST/ SGST | 18 | |
| To | Bank | 18 | |
| (Being tax deposited in the Electronic Cash Ledger) | |||
| Dr. | Output CGST/SGST (RCM) | 18 | |
| Cr. | Electronic Cash Ledger CGST/ SGST | 18 | |
| (Being payment of tax under RCM on intra-state supply made through Electronic Cash ledger) | |||
| Dr. | CGST/ SGST Electronic Credit Ledger | 18 | |
| Cr. | CGST/ SGST Interim Credit | 18 | |
| (Being ITC of RCM availed after Payment of same) |
- Entries for Inward Supply by way of Import:
Illustration: Imports 9 units @ Rs. 10 each, Total Custom Duty is Rs. 10, Total value of Inward supply is Rs. 100. IGST @ 18%
| Particulars | Dr. Amt | Cr. Amt | |
| Dr. | Inward Supply A/c | 100 | |
| Dr. | IGST- Interim Input | 18 | |
| To | Vendor/ Bank | 90 | |
| To | Custom Duty payable | 28 | |
| (Being Goods/ Services Imported) | |||
| Dr. | Custom Duty payable | 28 | |
| To | Bank | 28 | |
| (Being import purchases made and duties (basic customs and customs equivalent to IGST paid) | |||
| Dr. | IGST- Electronic Credit Ledger | 18 | |
| To | IGST- Interim Input | 18 | |
| (Being Input tax transferred on payment of tax under RCM on inter-state supply) |
- For Outward Supply on Forward Charge:
| Particulars | Dr. Amt | Cr. Amt | |
| Dr. | Debtor A/c | 118 | |
| To | Output CGST/ SGST/ IGST | 18 | |
| To | Sales | 100 | |
| (Being intra-state/ inter state supply made) | |||
| Dr. | Output CGST | 18 | |
| Cr. | Output Liability Ledger- CGST/SGST/ IGST | 18 | |
| (Being Liability reported in GSTR-3B.) |
- For Inward Supply on Forward Charge:
| Particulars | Dr. Amt | Cr. Amt | |
| Dr. | Purchase A/c | 50 | |
| Dr. | CGST/SGST/ IGST Input | 9 | |
| To | Vendor/ Bank | 59 | |
| (Being Purchase made) | |||
| Dr. | Electronic Credit Ledger- CGST/ SGST/ IGST | 9 | |
| Cr. | CGST/ SGST/ IGST Input | 9 | |
| (Being ITC availed in GSTR-3B) |
- For Set Off of Liability & ITC as per Return filed
| Particulars | Dr. Amt | Cr. Amt | |
| Dr. | Electronic Liability Ledger – CGST/ SGST/ IGST | 9 | |
| Cr. | Electronic Credit Ledger- CGST/ SGST/ IGST | 9 | |
| (Being Output liability set off with ITC claimed in GSTR-3B) |
- Deposit of Cash on Portal:
| Particulars | Dr. Amt | Cr. Amt | |
| Dr. | Electronic Cash Ledger- CGST/ SGST/ IGST | 9 | |
| Cr. | Bank | 9 | |
| (Being Cash deposited to Electronic Cash Ledger) |
- Payment of GST through Electronic Cash Ledger:
| Particulars | Dr. Amt | Cr. Amt | |
| Dr. | Electronic Liability Ledger- CGST/ SGST/ IGST | 9 | |
| Cr. | Electronic Cash Ledger- CGST/ SGST/ IGST | 9 | |
| (Being Balance GST liability discharged from Electronic Cash ledger) |
Following this accounting process will result in simple and better presentation of GST transactions.
Hope you find this article useful. If you have any query, let me know. (LinkedIn Profile: https://www.linkedin.com/in/ca-ninad-mankar-247369193/)
Author Bio
OUTPUT IGST OR CGST+SGST RCM A/C SHOULD BE TRANSFERRED IN ELECTRONIC LIABILITY LEDGER FIRST, THEN SET OFF ELECTRONIC LIABILITY LEDGER WITH ELECTRONIC CASH LEDGER