Key things to keep in mind with respect to accounting under GST
With every change in tax laws, there must be certain points that must consider while preparing the accounts or keeping our books and records. So, we are trying to highlight a few key areas & procedures one should know and must keep in mind while creating, maintaining & accounting records under GST
1. Invoicing: What should an invoice include?
There is a prescribed format for an invoice under GST. Following things are essential:
- Your details – Trade name, GSTIN, Registered address.
- The customer’s details: Trade name, GSTIN, Registered address
- Service/Goods details – Description, HSN code, value
- Tax details – a rate of tax(es), amount of tax(es)
- Other details – a place of supply, state code
2. When to issue a document such as an invoice etc. under GST?
A tax invoice needs to be issued for all supply of goods and services. In the case of exempted goods or services, issue bill of supply.
GST is to be charged on any advance received by the purchaser. For instance, if a person has given an order for buying electronics amounting to Rs.5 Lakhs and he gives Rs.1 Lakh in advance, in this case, he should pay GST on that advance to the supplier at the time of payment itself.
Here is the format of documents under GST in excel format
a. Tax invoice- Intrastate sale: To be issued in case of Intrastate sales i.e. sales within states
b. Tax invoice- Interstate sale: To be issued in case of Interstate sales i.e. sales in other states
c. Bill of supply: To be issued in case of a supply of exempted goods & services
d. Export invoice:To be issued in case of export sale
e. Credit note
f. Debit note
g. Receipt voucher:To be issued at the time of receipt of the advance amount, charge GST on that amount
h. Payment voucher:A registered person who is paying tax under reverse charge mechanism shall a payment voucher at the time of making payment to the supplier.
3. How do we charge GST and at which rate?
A person issuing an invoice charges GST depending upon the type of supply.
For an interstate supply, IGST should be charged. For instance, on the supply of goods or services of 12%, from Delhi to UP or any other state, IGST to be charged at 12%.
For an intrastate supply, CGST & SGST should be charged equally. For instance, on the supply of goods or services of 12%, within your state, 6% SGST and 6% CGST should be charged.
To determine the rate which you should charge on the goods or services supplied, you must refer to the tax rates prescribed by the government based on HSN.
4. Record keeping under GST
One should keep invoice-wise details under GST. Since returns under the GST regime require to give details of all invoices issued to a registered dealer in the monthly returns filed under GST. Hence all the invoices should be maintained separately.
If you have issued invoices to an unregistered person, Reverse charge mechanism becomes applicable and we need to maintain the consolidated details – rate wise, state wise. Hence, it is better to organize your trading stock or other commodities in different rate baskets and keep records accordingly.
5. Returns under GST
Under the current GST regime, a regular dealer is required to submit the below returns
- GSTR-1: Return of outward supplies, this should be filed within 10th of the next month
- GSTR-2: Return of inward supplies, this should be filed within 15th of the next month
- GSTR-3: Monthly return based GSTR–1 and GSTR–2, this should be filed within 20th of the next month
- GSTR-9: Annual return, this should be filed by 31st December of the next financial year.
You can read more about these returns and other specific returns to be filed under GST depending upon the nature of your business.
The government has introduced a simpler form GSTR-3B for the first two months i.e. July and August, thereby postponing the filing of regular returns (GSTR-1 &2). However, the invoice-wise details in regular GSTR-1 would have to be filed for the months of July and August 2017
6. Accounting for an input tax credit
If you have purchased something for the purpose of your business and have paid GST on the same, then the GST component will not form part of your cost as you would get the input credit (subject to certain conditions) of such GST paid, thus it would be shown as an asset in your books. However, if the input tax credit is not admissible as per the law, then it will be shown as a cost.
Sometimes the GST paid is not allowed at the time of payment, but may be allowed later. For example, if you have paid an advance, then you cannot claim input credit on that amount because the goods or services have not yet been received. In such cases, we need to before recognizing that amount as an asset.
7. Considerations under reverse charge
Reverse charge is applicable to supplies from an unregistered person exceeding Rs 5000 per day. Further, it is also applicable in case of some specified services like GTA, legal service, etc. In these cases, you need to pay the tax instead of the supplier. This gets added to your tax liability and this liability must be discharged only in cash (i.e. input tax credit cannot be used against this).
So, to avoid confusion & to maintain clarity. Following practices can be followed:
- Keep a separate record of registered and unregistered purchases. It would be better to make separate accounting ledgers in the accounting software to keep the accounting independent & easily identifiable.
- For all the unregistered purchases (of both goods and services), you need to further segregate the following –
- Those that are taxable under GST (for example, labor contracts, canteen services, renting a cab); and
- Those that are not taxable or exempt from GST (for example, salary and wages, petrol/diesel, electricity)
- Check whether all expenses that are – (a) taxable, (b) from unregistered persons and (c) in a single day, exceed ₹5000 taken together. If yes, then you need to pay tax on the same.
- For paying this tax, you need to identify the expenditure, identify the relevant HSN/SAC and identify the relevant tax rate on that
8. Syncing your ledgers with the GST portal
Your GST account has 2 main ledgers viz. the cash ledger and the credit ledger. Make sure you maintain your records and they reconcile with these ledgers on the portal. The input credit paid on purchases goes to the credit ledger while the excess cash paid than the taxable amount goes to the cash ledger.
These are the broad principles of some important things to keep in mind for accounting after GST. Do not hesitate to write to us in case you have any queries.