Goods and Services Tax (GST) | Class 11 Accountancy

 Goods and Services Tax (GST) 

Meaning of GST

• GST is an indirect tax which is levied on supply of goods and services. 
• GST has replaced many indirect taxes levied by Central Government (such as excise duty, service tax, central sales tax) and State Government ( such as octroi, VAT, entertainment tax, taxes on lottery etc).
• Tax paid on purchase of goods and services is called Input GST and tax collected on sales is called Output GST.
• Input GST - Asset, Output GST - Liability

GST Rate Structure:  

1. Essential Items - 0%
2. Common Use Items - 5%
3. Standard Rate - 12 %
4. Maximum Goods and All services Standard Rate - 18%
5. Luxury Items and tobacco - 28%

Characteristics of GST:

1. GST is a comprehensive indirect tax which has replaced all indirect taxes levied by Central and State Governments.
2. There are uniform rates of GST across all states.
3. GST paid on purchase of goods and services (Input GST) is not a cost but is an asset for the purchaser. This is because Input GST can be set off against Output GST. 

Types of GST:

• Tax on intra-state sales (sales within the same state) - Central GST (CGST) and State GST (SGST) 
• Tax on inter-state sales (sales outside the state) - Integrated GST (IGST)

Accounting Treatment

Important Journal Entries in case of intra-state transactions:

1. For purchase of goods 

      Purchase A/c Dr. 

      Input CGST A/c Dr. 

      Input SGST A/c Dr. 

                To Bank/Creditors A/c

 2. For purchase of fixed assets 

      Fixed Assets A/c Dr. 

      Input CGST A/c Dr. 

      Input SGST A/c Dr. 

                To Bank/Creditors A/c

3. For payment of expenses

      Expenses A/c Dr. 

      Input CGST A/c Dr. 

      Input SGST A/c Dr. 

                To Cash/Bank A/c

 4. For purchase returns

    Creditors A/c Dr. 

            To Purchase Returns A/c

            To Input CGST A/c 

            To Input SGST A/c 

             

5. For sale of goods

Cash/Debtors A/c Dr.

    To Sales A/c

    To Output CGST A/c

    To Output SGST A/c

6. For receipt of income

Cash/Bank A/c Dr.

    To Income Received A/c

    To Output CGST A/c

    To Output SGST A/c

7. For setting off Input CGST against Output CGST A/c

   Output CGST A/c    Dr.

       To Input CGST A/c

8. For setting off Input CGST against Output CGST A/c

   Output SGST A/c Dr.

       To Input SGST A/c 

9. For payment of GST

   Output CGST A/c    Dr.

   Output SGST A/c Dr.

       To Bank A/c

Important Journal Entries in case of inter-state transactions:

1. For purchase of goods 

      Purchase A/c       Dr. 

      Input IGST A/c         Dr.

                To Bank/Creditors A/c

 2. For purchase of fixed assets 

      Fixed Assets A/c Dr. 

      Input IGST A/c Dr.

                To Bank/Creditors A/c

3. For payment of expenses

      Expenses A/c      Dr. 

      Input IGST A/c   Dr. 

                To Cash/Bank A/c

 4.  For purchase returns

    Creditors A/c         Dr. 

            To Purchase Returns A/c

            To Input IGST A/c 

 

             

5. For sale of goods

Cash/Debtors A/c    Dr.

    To Sales A/c

    To Output IGST A/c

    

6. For receipt of income

Cash/Bank A/c Dr.

    To Income Received A/c

    To Output IGST A/c