Impact of GST on Accounting
♦ Introduction of GST from 1st July 2017, India has moved towards a single indirect tax regime for goods & services for the entire country with uniform accounting system under GST.
♦ State-wise Registration and Accounting (Person liable for registration as per Section 22 of CGST Act)
♦ Supplies without Consideration (Schedule I of CGST Act specifies certain activities to be treated a supply without considerations.
♦ Under Ind AS, excise duty is included in revenue, since it is a production-based tax. Sales tax and VAT is NOT included in revenue, since it is levied at the time of sales. GST is a destination- based tax, which is levied at the point of supply. Hence, it appears that revenue will not be presented including GST however certain clarity in Ind-AS is expected in this regard.
♦ Specific Provisions which have directly Impacted on accounting such as Works Contract, Composite Supply etc.
♦ Dual model of Tax : -All transaction of supply would be subject to 2 Levies (State and Union government) and levied is shared between 2.
♦ 4 Types of Levies :
1. Central Goods and Service Tax (CGST)
2. State Goods and Service Tax (SGST)
3. Integrated Goods and Service Tax (IGST)
4. Compensation Cess
Every Business has two transactions : –
1) Outward Supply (Sales) reported in GSTR 1 to be filed by normal Taxpayer
2) Inward Supply (Purchase) auto populated in GSTR2A
It can be divided into 3 broad area – Input, Output and Tax payable
Maintenance of various accounts by Businesses other than Composition tax payer
Generally following Accounts to be maintained by a normal taxpayers under GST : –
- Input CGST A/c
- Input SGST A/c
- Input IGST A/c
- Output CGST A/c
- Output SGST A/c
- Output IGST A/c
- GST Payable A/c
- Input and output Cess (If applicable)
Illustrative example of business transactions under GST
- Outward supplies ( Inter or Intra state)
- Inward Supplies ( Inter or Intra state)
- Set Off of ITC Against Out Tax Liability
- Refunds in Case of Export of Goods & Services
- Reverse Charge Transactions
Intra state =within same state or union territory
Inter state = outside state or union territory
Expenses can be divided into the following categories under GST
- Expenses on which ITC availed
- Expenses on which ITC NOT availed
- Expenses on which GST paid on RCM
- Expenses on which no GST charged by supplier as below threshold
- Expenses with zero rated GST
- Expenses on which GST not leviable
Following records to be maintained under GST
- Stock records
- Inward & outward supply of goods/ services
- ITC availed
- Tax Invoice
- Bill of Supply
- Debit note/ credit notes
- Receipt/ Payment/ Refund voucher
Impacting of GST transaction on Financial Statements
Following Points of Checklist will help you : –
1. Reconcile your Outward and Inward Supply
2. Check eligibility of ITC under section 16 read with rules
3. Reverse Charge Mechanism [RCM – Sec 9(3)]
4. Reconcile with Cash & Credit Ledger balances
5. ITC Wrongly Availed
6. ITC not Availed
7. Income Accrued as per IT but not liable to GST
8. Advance Received against services (Not Goods)
Reconcile your Outward and Inward Supply
- Reconcile Outward and Inward Supply with GST Invoices, Debit Note / Credit note/documents issued during FY.
- Reconcile Outward & Inward Supply as per BOA with GST return (GSTR 3B and GSTR 1/GSTR 2A )
- Reconcile your Turnover with 26 AS
- Reconcile Turnover with GST TDS(If applicable)
Check eligibility of ITC u/s 16 read with rules
- Check eligibility of ITC as per section 16 and Rule 36.
- Reverse ITC if not cover under eligibility criteria
- As per proviso to Section 16 (2) (d) regarding payment to vendor within 180 days from date of issue of Invoice , Reverse ITC along with interest , if payment not done by adding in outward supply.
- Record in financial statement as current liability .
- If payment is made in subsequent period then re- avail ITC up to September 2021 Return for FY 20-21.
Reverse Charge Mechanism [RCM – Sec 9(3)]
- Review the financial statements of FY 2020-21 identify expenses subject to RCM as per Sec 9(3).
- Reconcile GST liability on above with RCM liability discharged through GSTR 3B and/or DRC 03.
- Discharged GST liability under RCM along with interest if not paid and also avail ITC in the subsequent returns till return for the period of September 2021 for FY 2020-21
- Record as Current liability as GST payable also Current assets as ITC receivable in the financial statements of FY 2020-21.
Reconcile with Cash & Credit Ledger balance
- Reconcile Financial BOA with cash and credit ledger of GSTN portal.
- Record in your financial statements as current assets of Cash and credit balance reflecting in GST portal.
- Also Review GST TDS receivable if any and record as current assets.
- Identify justify reason for non reconcile and preserve in records for future departmental scrutiny / audit.
ITC – Wrongly Availed
- ITC wrongly availed of the inputs covered u/s 17(5) of CGST Act (Block Credit)
- ITC Wrongly availed not complying with provisions of Rule 36(4).
- ITC not reversed considering Rule 42 / 43
- Identify those ITC reverse them in upcoming Returns and prepare Reconciliation
- Discharge Interest on reversal if same is utilized.
- Record in Financial Statements on as Current liability.
ITC NOT Availed
- Record all invoices in Books of accounts according to supporting documents.
- Reconcile ITC with Books of accounts, GSTR 2A , Tax invoice of inward supply, debit note from supplier etc.
- Identify ITC missed in GST Returns or Books of accounts
- Record ITC NOT availed as current asset as ITC receivable.
- Avail ITC in subsequent returns up to the Return for the period September 2021 for FY 20-21.
Income Accrued as per IT but not liable to GST
- Identify Income accrued as per Income Tax but not liable to GST in the period in which it is accrued considering time of supply provisions.
- Prepare Reconciliation Between Outward supply as per Income Tax and GST for future reference .
- Discharge GST liability in subsequent period as per Time of Supply provisions.
Advance Received against supply of services (Not on supply of Goods)
- Amount received but no invoice is raised against supply of services
- Review your bank statements for receipts against which no invoice is raised .
- As per Sec 12 of CGST Act (Time of Supply), GST is payable on advance receipt
- Advance receipt was reflected in the return for the period of receipt but same is not apply for Goods as per Notification No. 66/2017 – Central Tax, dated15/11/2017 – .
- Discharged GST liability along with due interest at the time of advance identified against Outward supply of Services, on which GST liability not discharged yet.
- Record as Current assets in financial statements as GST Paid on Advance.
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