Accounting under gst and tax utilisation

GST law will be implemented from 1st July 2017. It is very important to know the accounting of tax credit, output tax and tax credit utilisation. I will explain the accounting of GST in different scenarios as follows:

1. Intra state purchase and sales
2. Interstate purchase and sales
3. Import Purchase
4. Reversed charge purchase

1. Intra State purchase and sales

In this scenario, the Company purchases the material/service from a business situated within the same state and the supply of material happens from the same state.

Illustrative:

XYZ Ltd had below transaction in the Month of July 2017. XYZ Ltd has the manufacturing plant in Chennai. The below transaction value are before tax.

1. Purchased raw material for INR 10, 00,000 from Salem.
2. Purchased Computers for INR 4,00,000 from Chennai
3. Paid Professional fee for INR 200,000
4. Sold Finished Goods for INR 15,00,000 to a customer situated in Madurai

Assumptions: a) In case of Material the GST rate is – CGST – 14% and SGST – 14% and b) In case of service the GST rate is – CGST – 9% and SGST – 9%.

The accounting entries will be as follows:

Sl. No	Particulars	Dr/Cr	Amount (Dr)	Amount (Cr)
(i)	Inventory A/c	Dr	10,00,000
	CGST Input A/c	Dr	140000
	SGST Input A/c	Dr	140000
	To Vendor A/c	Cr		12,80,000
	(material purchased from Salem)
(ii)	Computers A/c	Dr	4,00,000
	CGST Input A/c	Dr	56,000
	SGST Input A/c	Dr	56,000
	To Vendor A/c	Cr		5,12,000
	(Computer purchased)
(iii)	Professional Charges	Dr	2,00,000
	CGST Input A/c	Dr	18,000
	SGST Input A/c	Dr	18,000
	To TDS Payable	Cr		23,600
	To Vendors	Cr		2,12,400
	(Professional fee paid)
(iv)	Customer A/c	Dr	19,20,000
	To CGST Output A/c	Cr		2,10,000
	To SGST Output A/c	Cr		2,10,000
	To Revenue	Cr		15,00,000
	(Finished Goods sold)

 

The tax credit and output tax balance after the above transaction is as follows:

Input Credit (INR)		Output tax (INR)
CGST	SGST	CGST	SGST
2,14,000	2,14,000	2,10,000	2,10,000

 

2. Inter State purchase and sales

In this scenario, the Company purchases the material/service from a business situated outside the state and the supply of material happens from outside the state.

Illustrative:

XYZ Ltd had below transaction in the Month of July 2017. The below transaction value are before tax.

1. Purchased raw material for INR 8, 00,000 from Bangalore
2. Purchased Furniture for INR 3,00,000 from Chennai
3. Sold Finished Goods  for INR 400,000 to a customer situated in Chennai
4. Sold Finished Goods for INR 12,00,000 to a customer situated in Mumbai

Assumptions: a) In case of Material the GST rate is – CGST – 14% and SGST – 14% and b) In case of service the GST rate is – CGST – 9% and SGST – 9%.

The accounting entries will be as follows:

Sl. No	Particulars	Dr/Cr	Amount (Dr)	Amount Credit
(i)	Inventory A/c	Dr	8,00,000
	IGST Input A/c	Dr	2,24,000
	To Vendor A/c	Cr		10,24,000
	(material purchased from Bangalore)
(ii)	Furniture A/c	Dr	3,00,000
	CGST Input A/c	Dr	42,000
	SGST Input A/c	Dr	42,000
	To Vendor A/c	Cr		3,84,000
	(Furniture purchased)
(iii)	Customer A/c	Dr	5,12,000
	To CGST Output A/c	Cr		56,000
	To SGST Output A/c	Cr		56,000
	To Revenue	Cr		4,00,000
	(Finished Goods sold - Chennai)
(iv)	Customer A/c	Dr	13,44,000
	To IGST Output A/c	Cr		1,44,000
	To Revenue	Cr		12,00,000
	(Finished Goods sold - Mumbai)
	(Finished Goods sold)

 

The tax credit and output tax for the above transactions is as below:

Input Credit (INR)			Output tax (INR)
CGST	SGST	IGST	CGST	SGST	IGST
42,000	42,000	2,24,000	56,000	56,000	1,44,000

 

The tax credit and output tax balance after intra and interstate transaction is as follows:

Input Credit (INR)			Output tax (INR)
CGST	SGST	IGST	CGST	SGST	IGST
2,56,000	2,56,000	2,24,000	2,66,000	2,66,000	1,44,000

 

3) Import Purchase

In this scenario, the Company purchases the material/service from a business situated outside India. In this case the BCD remains the same as per the current tax regime. However the CVD will be replaced with IGST.

Illustrative:

XYZ Ltd had below transaction in the Month of July 2017. The below transaction value are before tax.

1. Purchased raw material for INR 10, 00,000 from US.

Assumptions: a) In case of Material the GST rate is – CGST – 14% and SGST – 14% and b) In case of service the GST rate is – CGST – 9% and SGST – 9%.

 

 

 

The accounting entry will be as follows:

Sl. No	Particulars	Dr/Cr	Amount (Dr)	Amount Credit
(i)	Inventory A/c	Dr	10,00,000
	BCD to be capitalised A/c	Dr	1,00,000
	IGST Input A/c	Dr	3,08,000
	To Vendor A/c	Cr		10,00,000
	To Commissioner of Customs A/c	Cr		4,08,000
	(material purchased from Bangalore)

 

The tax credit and output tax for the above transactions is as below:

Input Credit (INR)
CGST	SGST	IGST
-	-	3,08,000

 

The tax credit and output tax balance after intra, interstate and import transaction is as follows:

Input Credit (INR)			Output tax (INR)
CGST	SGST	IGST	CGST	SGST	IGST
2,56,000	2,56,000	5,32,000	2,66,000	2,66,000	1,44,000

 

4. Reverse Charge

In this scenario, the Company purchases the material/service from a business that is unregistered under GST or where service is received from a business situated outside India.

XYZ Ltd had below transaction in the Month of July 2017. The below transaction value are before tax.

1. Purchased raw material for INR 2, 00,000 from an unregistered vendor situated in Chennai.

Assumptions: a) In case of Material the GST rate is – CGST – 14% and SGST – 14% and b) In case of service the GST rate is – CGST – 9% and SGST – 9%.

The accounting entry will be as follows

Sl. No	Particulars	Dr/Cr	Amount (Dr)	Amount Credit
(i)	Inventory A/c	Dr	2,00,000
	CGST Input A/c	Dr	28,000
	SGST Input A/c	Dr	28,000
	To Vendor A/c	Cr		2,00,000
	To CGST Output A/c	Cr		28,000
	To SGST Output A/c	Cr		28,000
	(material purchased from unregister  vendor)

 

The tax credit and output tax for the above transactions is as below:

Input Credit (INR)			Output tax (INR)
CGST	SGST	IGST	CGST	SGST	IGST
28,000	28,000		28,000	28,000	-

 

The tax credit and output tax balance after intra, interstate and import transaction is as follows,

Input Credit (INR)			Output tax (INR)
CGST	SGST	IGST	CGST	SGST	IGST
2,56,000	2,56,000	5,32,000	2,66,000	2,66,000	1,44,000

 

Tax Credit utilisation

Below is the table, explaining how the tax credit utilisation has to be set off.

Particulars	Output tax (INR)
	CGST	SGST	IGST
Output Tax liability	2,66,000	2,66,000	1,44,000
Tax Credit utilisation
(a) Utilisation of CGST Input credit	256000	-	-
(b) Utilisation of SGST Input credit	-	256000	-
(c) Utilisation of IGST input Credit	10,000	10,000	1,44,000
Net tax payable in cash	-	-	-

 

Note: (i) Any IGST credit will be first be applied to set off IGST and then CGST. Balance if any will be applied to set off SGST.

(ii) CGST and SGST Input credit has been completely utilised as the tax output was higher than the credit amount.

(iii) Unutilised IGST Input credit outstanding after utilisation is INR 368,000 (INR 532,000 – INR 164,000)

Hope this article will help in understanding the Basic GST accounting. All the above accounting has to be based on each state. CGST/SGST should not be mixed up with all states. Separate ledgers has to be maintained for each state and separate utilisation entry has to be accounted state wise.

All the best :)