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The original intent of the GST law with regards to regular filing was to file monthly returns in the following manner:

  1. Return containing details of outward supplies to be filed by 10th of the next month (GSTR 1);
  2. Return containing details of inward supplies to be filed by 15th of the next month (GSTR 2); and
  3. Return setting off tax on output and input supplies to determine net tax payable to be filed by 20th of the next month (GSTR 3).

During this transition period, the GSTR Forms currently in force are GSTR 1 and GSTR 3B. However, we are slowly moving towards the filing of all the intended GST returns on their respective due dates and it is high time we make sure that the way we account for our GST dues are in order.

Understand ledgers under GST

Generally, the ledgers maintained with respect to GST entries are Output CGST/ SGST/ IGST and Input CGST/ SGST/ IGST. Other than the above records, there are mainly 3 electronic ledgers that are maintained by the GST portal which we can keep a track of in our accounts:

Electronic Liability Ledger: This ledger shows the tax liability payable by the assessee and can only be cleared when it is set off against either the electronic credit ledger or electronic cash ledger or both.

Electronic Credit Ledger: This leger depicts the credit tax available if any.

Electronic Cash Ledger: This ledger maintains details of tax payments made by the assessee which can be used to set off tax liabilities as displayed by the Electronic Liability Register.

Thus, if we want to truly make sure that our accounts are in line with the GST portal we will need to account for the above ledgers and also pass monthly closing entries.

How to pass accounting entries for filing

Let us first see how the entries are passed keeping in mind the requirements of the 3 main GST forms:

GSTR 1

The output tax liability is determined through this form initially and hence our entries will reflect the same.

i ) B2B / B2C supplies:

During the month let’s say:

The taxable value of our sales/ output = Rs. 3,00,000

On which CGST = Rs. 27,000 and SGST = Rs. 27,000.

The entries while making the actual supply would be as follows:

 

Debtors A/c ………………Dr.

         To Sales (B2B / B2C) A/c

         To Output CGST A/c

         To Output SGST A/c

3,54,000
3,00,000
27,000
27,000

Word of advice: Maintain separate sales accounts for B2B, B2C, Export, Exempt, inter-state sales and even supplies liable to reverse charge.

ii) Exempt supplies:

Debtors A/c ………………Dr.

         To Sales (Exempt) A/c

xx
xx

Making an exempt supply will not lead to any output tax liability but will still have to be disclosed in the Form GSTR – 1 and thus proper records will need to be maintained in this regard.

iii) Zero-rated supply:

A zero-rated supply is a supply which includes exports and supplies made to an SEZ developer or an SEZ unit. Such supplies can be made under either of the following options:

  1. Without payment of tax (IGST): The goods or services may be exported without paying any IGST thereon under a bond or Letter of Undertaking after following the prescribed conditions.
  2. With payment of tax (IGST): The goods or services may be supplied after charging the applicable IGST and subsequently, the refund for such IGST can be claimed.

The accounting entries under the above 2 situations will be as follows:

 

Consider that an export has been made to Mr. Z located in a foreign country worth Rs. 1,00,000 and the applicable GST rate is 18%

Export made under bond:

Mr. Z A/c ……………….Dr.

         To Sales A/c

(Being export made to Mr. Z under bond without payment of tax)

1,00,000 1,00,000

Export made with payment of IGST:

25.04.2018 Mr. Z A/c ………………..Dr.

IGST Refund Receivable A/c ……….Dr.

         To Sales A/c

         To Output IGST A/c

1,00,000

18,000

 

 

1,00,000

18,000

 

iv) Advances received:

GST liability is attracted even on receipt of advance. Where an advance is received in a particular month and the invoice in respect of the same is raised in the same month, the accounting will be done as follows:

 

Bank A/c ………………Dr.

         To Advance for goods/ services A/c

(Being advance received on outward supply)

xx  

xx

Advance for goods/ services A/c ……….Dr.

         To Sales (B2B / B2C) A/c

         To Output CGST A/c

         To Output SGST A/c

xx  

xx

xx

xx

However, where the advance is raised in a particular month and the invoice is raised in a subsequent month, the GST will practically have to be paid on receipt of the advance itself and the accounting for the same will be done as follows:

Bank A/c ………………Dr.

         To Advance for goods/services A/c

(Being advance received on outward supply)

xx  

xx

GST on advance received A/c ……….Dr.

         To Output CGST A/c

         To Output SGST A/c

(Being GST liability recorded on the advance)

xx  

xx

xx

Advance for goods/services A/c ……….Dr.

         To Sales (B2B / B2C) A/c

         To Output CGST A/c

         To Output SGST A/c

(Being invoiced raised subsequent to receipt of advance)

xx  

xx

xx

xx

Output CGST A/c ……….Dr.

Output SGST A/c ……….Dr.

         To GST on advance received A/c

(Being output liability reduced since GST has been paid at time of receipt of advance)

xx

xx

 

 

xx

v) Credit / Debit Notes:

Credit notes in general have the effect of reducing the output tax liability and debit notes have the effect of increasing the output tax liability. The accounting for a credit note can be shown with the following example:

A sale of 100 units of goods costing Rs. 20 each was made by Mr. B to Mr. A and delivered to him on 25.04.2018. However, upon receipt of the consignment, Mr. A observed that only 90 units were delivered. Upon verification of the same, Mr. B will issue a credit note to Mr. A dated, say, 01.05.2018, in respect of the deficiency of 10 units. The entries for the above situation would be passed as follows:

25.04.2018 Mr. A’s A/c ………………..Dr.

         To Sales A/c

         To Output CGST

         To Output SGST

(Being 100 units sold @ Rs. 20 each to Mr. A)

2,360  

2,000

180

180

01.05.2018 Sales A/c ……….Dr.

Output CGST A/c ……….Dr.

Output SGST A/c ……….Dr.

         To Mr. A’s A/c

(Being credit note issued to Mr. A for deficiency in 10 units)

200

18

18

 

 

 

236

 

In the above example, if Mr. A received 110 units instead of the 100 units ordered for and he is given the option to pay for such goods and keep them, Mr. B will raise a debit note for the balance goods. The accounting for in respect of the balance 10 units will be done as follows:

25.04.2018 Mr. A’s A/c ………………..Dr.

         To Sales A/c

         To Output CGST

         To Output SGST

(Being debit note issued in respect of 10 units @ Rs. 20 each to Mr. A)

236  

200

18

18

 

  1. v) Amendment in invoices:

Form GSTR – 1 also allows for amending earlier raised invoices in case errors in the following inputs:

  • Invoice number
  • Invoice date
  • Place of Supply (but not supply type)
  • Invoice value
  • Taxable value
  • Amount of tax

Let us look at how an amendment in an invoice will affect our accounting entries:

Illustration 1:

Mr A made an output supply having taxable value of Rs. 30,000 on IGST of Rs. 5,400 was paid in the month of July 2018. While preparing the invoice for this supply, the taxable value was erroneously entered as Rs. 3,00,000 on which IGST of Rs. 54,000 was paid and the GSTR – 1 filed accordingly. The error was noticed in the subsequent month. The entries to be passed in such a case would be:

JulyDebtor A/c ………………..Dr.
To Sales (B2B / B2C) A/c
To Output IGST A/c
(Being the incorrect entry passed in July)
3,54,0003,00,000
54,000
AugustSales (B2B / B2C) A/c ……….Dr.
Output IGST A/c ……….Dr.
To Debtor A/c
(Being incorrect sales amount now corrected)
2,70,000
48,600
3,18,600

Since extra tax was paid, this amendment in the invoice has the effect of reducing the output tax payable in the month of August.

Illustration 2:

Mr A made an output supply having taxable value of Rs. 3,00,000 on which IGST of Rs. 54,000 was paid in the month of July 2018. While preparing the invoice for this supply, the taxable value was erroneously entered as Rs. 30,000 on which IGST of Rs. 5,400 was paid and the GSTR – 1 filed accordingly. The error was noticed in the subsequent month. The entries to be passed in such a case would be:

July Debtor A/c ………………..Dr.

         To Sales (B2B / B2C) A/c

         To Output IGST A/c

(Being the incorrect entry passed in July)

35,400  

30,000

5,400

August Debtor A/c ………………..Dr.

         To Sales (B2B / B2C) A/c

         To Output IGST A/c

(Being incorrect sales amount now corrected)

3,18,600  

2,70,000

48,600

 

Since short tax was paid in an earlier month, the output tax liability for the month of August would be increased by the difference in tax liability and interest would be charged accordingly at the time of payment.

vi) Closing entries:

At the time of filing GSTR -1, the output tax liability is determined and the entries will need to be passed in the following manner:

 

Output CGST A/c ……….Dr.

Output SGST A/c ……….Dr.

Output IGST A/c ……….Dr.

         To Electronic Liability Ledger CGST A/c

         To Electronic Liability Ledger SGST A/c

         To Electronic Liability Ledger IGST A/c

(Being output tax liability determined)

xx

xx

xx

 

 

 

xx

xx

xx

GSTR 2

Entries relating to the availing of Input Tax Credit will be passed by transferring the amount of credit from the input GST accounts to the respective Electronic Credit Ledgers. However, in this scenario, a possibility of ineligible Input Tax Credit emerges and should be accounted for in accordance with the provisions of the CGST Act . Where the entity makes both taxable and exempt supplies, the inputs used commonly to provide such output supplies would be availed and reversed in the proportion of exempt supply turnover to total turnover. If the appropriate bifurcation of ITC that needs to be reversed (T1, T2, and T3) and eligible ITC has been made according to the rules at the invoice level, the closing entries can be passed as follows:

 

Electronic Credit Ledger CGST A/c ……….Dr.

Electronic Credit Ledger SGST A/c ……….Dr.

Electronic Credit Ledger IGST A/c ……….Dr.          

Expense (T1 / T2 / T3 / Te) A/c ……….Dr.         

         To Input CGST A/c

         To Input SGST A/c

         To Input IGST A/c

(Being eligible ITC availed and ineligible ITC distributed as per GSTR 2)

xx

xx

xx

xx

 

 

 

 

xx

xx

xx

The treatment would be similar even in the case of capital goods being used to make an exempt outward supply.

Another aspect with regards to accounting at the time of filing Form GSTR – 2 is the matching of credits as available in Form GSTR – 2A. Where we have claimed credit in respect of certain inputs but the same is not shown on the portal, we are allowed to modify it which will then have to be accepted/rectified by the supplier. In the meantime, we are allowed to claim credit on a provisional basis which will be accounted for as follows:

 

Provisional Input CGST A/c ……….Dr.

Provisional Input SGST A/c ……….Dr.

Provisional Input IGST A/c ……….Dr.          

         To Electronic Credit Ledger CGST A/c

         To Electronic Credit Ledger SGST A/c

         To Electronic Credit Ledger IGST A/c

(Being ITC claimed on provisional basis due to mismatch with Form GSTR – 2A)

xx

xx

xx

 

 

 

xx

xx

xx

Assuming that we had claimed provisional credit with respect to IGST of Rs. 18,000 paid on consultancy services and this claim was rejected by the consultancy service provider, the entry to be passed is:

 

Consultancy Charges A/c ……………….Dr.

         To Provisional Input IGST A/c

(Being claim of provisional ITC rejected by supplier / service provider)

18,000  

18,000

Further, if such claim was accepted by the consultancy service provider, the entry would be:

 

Electronic Credit Ledger IGST A/c ……….Dr.

         To Provisional Input IGST A/c

(Being claim of provisional ITC accepted by supplier / service provider)

18,000  

18,000

GSTR 3

Form GSTR – 3 or GSTR – 3B is the final monthly return to be filed and it is in this form that the final tax payment is determined. Thus the final closing entry for the month with respect to GST would be as follows:

Electronic Liability Ledger CGST A/c ……….Dr.

Electronic Liability Ledger SGST A/c ……….Dr.

Electronic Liability Ledger IGST A/c ……….Dr.

         To Electronic Credit Ledger CGST A/c

         To Electronic Credit Ledger SGST A/c

         To Electronic Credit Ledger IGST A/c

         To Electronic Cash Ledger CGST A/c

         To Electronic Cash Ledger SGST A/c

         To Electronic Cash Ledger IGST A/c

(Being output tax liability set-off using available ITC and balance paid in cash)

xx

xx

xx

 

 

 

xx

xx

xx

xx

xx

xx

 

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