Accounting Procedures for GST Amendments, Credit/Debit Notes, and Mismatch Resolution

The Goods and Services Tax (GST) law initially aimed for a structured monthly return filing system: GSTR 1 for outward supplies by the 10th, GSTR 2 for inward supplies by the 15th, and GSTR 3 for net tax payable by the 20th of the following month. While currently, GSTR 1 and GSTR 3B are the active forms, the system is gradually moving towards the original scheme. This transition highlights the importance of maintaining accurate GST accounting records.

Understanding Ledgers Under GST

Businesses generally maintain ledgers for Output CGST/SGST/IGST and Input CGST/SGST/IGST. In addition, the GST portal maintains three electronic ledgers that taxpayers should reconcile with their internal accounts:

• Electronic Liability Ledger: This ledger displays the tax payable by the assessee, which can only be settled by offsetting it against the electronic credit ledger or electronic cash ledger, or both.
• Electronic Credit Ledger: This ledger shows any available tax credit.
• Electronic Cash Ledger: This ledger records tax payments made by the assessee, which can be used to settle tax liabilities shown in the Electronic Liability Ledger. To ensure accounts align with the GST portal, these ledgers must be tracked, and monthly closing entries passed.

Accounting Entries for GST Filings

Let's examine how entries are recorded, considering the requirements of the primary GST forms:

GSTR 1

GSTR 1 determines the output tax liability. Entries must reflect this accordingly.

i) B2B / B2C Supplies:

For example, if monthly sales/output have a taxable value of Rs. 3,00,000, with CGST of Rs. 27,000 and SGST of Rs. 27,000, the entry at the time of supply would be:

It is advisable to maintain separate sales accounts for B2B, B2C, Export, Exempt, inter-state sales, and supplies subject to reverse charge.

ii) Exempt Supplies:

An entry for exempt supplies would be:

Exempt supplies do not incur output tax liability but must still be disclosed in GSTR-1, requiring proper record-keeping.

iii) Zero-Rated Supply:

Zero-rated supplies, such as exports and supplies to SEZ developers or units, can be made using two options:

1. Without IGST Payment: Goods or services can be exported without paying IGST under a bond or Letter of Undertaking, following specific conditions.
2. With IGST Payment: Goods or services can be supplied after charging applicable IGST, with a subsequent claim for refund of such IGST.

Consider an export of Rs. 1,00,000 to Mr. Z in a foreign country, with an 18% GST rate.

• Export made under bond:

• Export made with payment of IGST:

iv) Advances Received:

GST liability arises upon receipt of an advance. The accounting varies based on when the invoice is raised.

• Advance and invoice in the same month:

• Advance in one month, invoice in a subsequent month: GST is paid on advance receipt.

v) Credit / Debit Notes:

Credit notes generally reduce output tax liability, while debit notes increase it. For example:

• Credit Note (deficiency in units): Mr. B sold 100 units at Rs. 20 each to Mr. A. Mr. A received only 90 units. Mr. B issues a credit note for the 10 missing units.

• Debit Note (excess units): If Mr. A received 110 units instead of 100 and opts to keep them, Mr. B issues a debit note for the extra 10 units.

vi) Amendment in Invoices:

GSTR-1 permits amending previously issued invoices for errors in details such as invoice number, date, place of supply (but not supply type), invoice value, taxable value, and tax amount.

• Illustration 1 (Overpayment): Mr. A initially recorded a taxable supply of Rs. 30,000 (IGST Rs. 5,400) in July 2018, but erroneously entered Rs. 3,00,000 (IGST Rs. 54,000) and filed GSTR-1. The error was found in August.

This amendment reduces the output tax payable in August due to the initial overpayment.

• Illustration 2 (Underpayment): Mr. A recorded a taxable supply of Rs. 3,00,000 (IGST Rs. 54,000) in July 2018, but erroneously entered Rs. 30,000 (IGST Rs. 5,400) and filed GSTR-1. The error was found in August.

Since tax was underpaid in a previous month, the output tax liability for August increases by the difference, and interest would be charged upon payment.

vii) Closing Entries:

When filing GSTR-1, the output tax liability is determined, requiring the following entries:

GSTR 2

Entries related to claiming Input Tax Credit (ITC) involve transferring the credit amount from input GST accounts to the respective Electronic Credit Ledgers. It's important to account for ineligible ITC as per CGST Act provisions.

For entities making both taxable and exempt supplies, commonly used inputs for such output supplies are availed and then reversed proportionally (exempt supply turnover to total turnover). If ITC bifurcation (T1, T2, T3) and eligible ITC are properly managed at the invoice level, closing entries would be:

Similar treatment applies if capital goods are used for exempt outward supplies. Another crucial aspect in GSTR-2 accounting is matching credits with GSTR-2A.

If credit is claimed for inputs but not reflected on the portal, it can be provisionally claimed and later accepted/rectified by the supplier. Provisional claims are accounted for as follows:

If a provisional IGST credit of Rs. 18,000 for consultancy services was rejected by the service provider, the entry would be:

If the provisional ITC claim was accepted:

GSTR 3

GSTR 3 or GSTR 3B is the final monthly return where the net tax payment is determined. The final closing entry for the month, regarding GST, would be: