Goods and

Services Tax (GST)

(Accounting Aspect)

The Goods and Services Tax (or GST) is a revolution in the Indian taxation system. GST is a singe
indirect tax which has subsumed different taxes earlier levied by State and Central Govt. such as
Excise Duty, Service Tax, Value Added Tax (VAT) etc. It has brought in 'one nation one tax regime.
GST is a consumption based tax levied on the supply of goods and services right from the
manufacturer to the consumer. It applies to all goods other than crude petroleum, motor spirit,
diesel, aviation, turbine fuel and natural gas. It applies to all services barring a few. GST has
become a global standard. The tax system takes the form of dual GST model. Under this systenm,
both the Central and State Governments levy GST separately based on the nature of transaction
(within a state or inter-state). It comprises of
Central GST (CGST) which is levied by the Central Government on intra-state supply of goods
or services or both
State GST (SGST) Which is levied by the State Government on intra-state supply of goods and
services or both
Integrated GST (IGST) which is levied by the Central Government on inter-state supply of
goods or services or both and import transactions.
Note: In case of intra-state supply of goods and services, CGST and SGST both are levied equally ie. at 50% of the
specified rate. Thus, if the specified rate is 12%, the rate of CGST and SGST will be 6% each.
Ia Taxes Subsumed under GST
Many taxes have been subsumed under GST which are as under:
1. Central Taxes
(a) Excise Duty
(b) Custom Duty
(c) Service Tax
(d) Central Sales Tax
2. State Taxes
(a) Value Added Tax (VAT)
(b) Purchase Tax
(c) Luxury Tax
(d) EntryTax
(e) Octroi
() Entertainment and Amusement Tax
 (g) Taxes on Lotteries, Betting and Gambling
(h) Luxury Tax
e Tax Rate Structure
The GST Council has fixed a five-tire structure of 0%,5%, 12%, 18% and 28%. The 0% rate is for
essential items including food, 5% rate is for mass consumption items, 12% and 18% are two
standard rates, while 28% rate is for luxury items and tobacco.
TTAdvantages of GST
The following are the chief advantages of GST :
taxes. Besides, uniformity in the rates of
(1) A single GST tax has replaced a number of indirect understand and easy to administer.
tax and taxation structure has made GST simple to
cascading (i.e. tax on tax) effect of
(2) GST allows seamless flow of tax credit and eliminates the retailers, and across state
all the indirect taxes in the supply chain from manufacturers to
borders.
GST there is greater compliance, thus increasing the
(3) As the tax structure is simple under revenues
number of tax payers and in turn tax for the Government.
(4) GST has made the tax system more transparent and compliance easy. cascading effect.
to the elimination of
(5) The cost of goods decreases in the GST regime due
technology driven system where return
(6) Tax evasion has become more difficult as GST is a
filing and assessment is done electronically.
a Input Tax Credit Set off
transaction (i.e. a transaction within the same
GST is a dual concept system. On an intra-state inter-state transaction (i.e. a transaction
an
state), a component of CGST and SGST is applicable. On it is important for a dealer to know how
between two different states), IGST is applicable. Hence components (i.e. GST collected) in
the input credit (i.e. GST paid) against each of these
to set off which credit needs to be set off is explained
the order as prescribed by the GST Law. The order in
below :
liput Tax Credit Set off against Tax Liability
CGST (Central GST) CGST and IGST (in that order)
SGST (State GST) SGST and IGST (in that order)
IGST (Integrated GST) IGST, CGST and SGST (in that order)
against output SGST and input So
It is important to note here that input CGST cannot be set off
cannot be set off against output CGST.
I GST paid on purchase -an asset or cost it
purchaser becausean
GST paid on purchase of goods and services(input GST) is not acost tothe as
be treated GST
can be set off against GST collected on sales (output GST). It should, therefore,In such cases,
asset. In some cases, however, GST paid cannot be set off against GST collected.
should, therefore,
paid on purchase of goods and services is a'cost to the purchaser which Account).
GST against
debited to the account where the transaction is debited (and not to the Input set off
cannot be
Examples of cases where GST paid on purchase of goods and services
GST Collected are as under :
(i) Food and beverage expenses (Restaurant bills) ;
(ii) Health insurance;
(ii) Membership fee of clubs,health and fitness centres ;
(iv) Repairs and maintenance of building ;
(v) Free gifts to staff ;
(vi) Purchase of vehicles by a non-transport concern ;
(vi) Goods and services for personal consumption.
ta Some goods exempt from GST
The following are few goods which are exempt from the levy of GST :
(1) Fresh fruits and vegetables.
(2) Fresh meat, chicken, eggs, milk.
(3) Books, journals and periodicals.
(4) Stamps, judicial papers etc.
Some services exempt from GST
The following are few services which are exempt from the levy of GST:
(1) Payment of salaries and wages
(2) Supply of services to Government or to Embassies of other countries
(3) Educational services
(4) Health services
(5) Water Bills
(6) Renting of residential house for use of residence
Items kept outside the purview of GST
Petroleum products
Alcohol for human consumption
Electricity
ET Reversal of GST
GST paid (i.e. Input GST) is reversed or credited in the following cases :
(1) Goods returned to suppliers (purchase returns)
(2) Goods withdrawn by the proprietor
(3) Goods distributed as free samples or given away as gift or charity
(4) Goods destroyed in an accident
(5) Goods lost or stolen
(6) Goods written off being not salable
GST collected on sales (output GST) is reversed or debited when goods are returned by customers
(sales returns).
a Accounting for GST
Under GST a trader has to maintain the following accounts (apart from the usual accounts Hke
purchases account, sales account etc.):
Input CGST Account
Output CGST Account
Input SGST Account
Output SGST Account
Input IGST Account
Output IGST Account
Summary of Accounting Entries
(1) For purchase of fixed assets (e.g.Furniture)
Furniture A/c Dr.

Input CGST A/c Dr.

Input SGST A/C Dr.

Input IGST A/c Dr.

ToVendor A/c/Bank A/c

(2) For purchase of goods
Purchases A/c Dr.
Input CGST A/c Dr.
Input SGST A/c Dr.
Input IGST A/c Dr.
To Creditor A/c/Bank A/c
(3) For sale of goods
Debtor A/c/BankA/c Dr.
To Sales A/c
To Output CGST A/c
Output SGST A/c
Output IGST A/c
(4) For purchases return
Creditor A/c
Dr.
To Purchases Return A/c
, Input CGST A/c
Input SGST A/c
Input IGST A/C
(5) For sales return
Sales Return A/c Dr.
Output CGST A/c Dr.
Output SGST A/c Dr.
Output IGST A/c Dr.
To Debtor A/c
(6) For expenses (e.g. Telephone Expenses)
Telephone Expenses A/c Dr.
Input CGST A/c Dr.
Input SGST A/c Dr.
To Bank A/c
(7) For revenues other than sale (e.g.
Commission received)
Bank A/c Dr.
To Commission Received A/c
Output CGST A/c
n OutputSGST A/le
Output IGST A/c
(8) For goods withdrawn by the proprietor for personal use
Drawings A/c Dr.
To Purchases A/c
Input CGST A/c
n Input SGST A/c
n Input IGST A/c
(9) For goods distributed as free samples/loss of goods by fire or theft etc.
Advertisement A/c Dr.
Loss by Fire A/c Dr.
Loss by Theft A/c Dr.
To Purchases A/c
n Input CGST A/c
Input SGST A/C
Input IGST A/C
(10) For setting off Input CGST against output CGST
Output CGST A/c Dr.
To Input CGST A/c
(11) For setting off Input SGST against output SGST
Output SGST A/c Dr.
To Input SGST A/c
(12) For setting off Input IGST against output IGST
Output IGST A/c Dr.

To Input IGST A/c

(13) For seting off Input CGST against output IGST
Dr.
Output IGST A/c
To Input CGST A/c
(14) For setting off Input SGST against output IGST
Output IGST A/c Dr.
To Input SGST A/c
(15) For setting off Input IGST against output CGST
Output CGST A/c Dr.

To Input IGST A/c

(16) For setting off Input IGST against output SGST
Output SGST A/c Dr.

To Input IGST A/C

(17) For payment of GST
Output CGST A/c Dr.
Output SGST A/c Dr.
Output IGST A/c Dr.
To Bank A/c
Note: If Input GST is more than output GST, the excess is called input tax credit which is carried forward for adjustment
in the next year.