Understanding GST Account and Record Keeping Requirements

Businesses registered under the Goods and Services Tax (GST) system are mandated to keep all necessary records at their primary business location.

Essential Records Under GST

Every registered entity is obligated to maintain a comprehensive set of records at their main place of business.

Obligation to Maintain GST Accounts

Certain individuals and entities bear the responsibility for maintaining specific records under GST. These include:

• The business owner
• Operators of warehouses, godowns, or any other storage facilities for goods
• All transporters

Furthermore, any registered person with an annual turnover exceeding a specified threshold (currently ₹2 crore) in a financial year must have their accounts audited by a qualified chartered accountant or cost accountant.

Required Documentation Under GST

Registered individuals are required to maintain detailed documentation for various aspects of their business operations. These records must cover:

• The production or manufacturing of goods
• Both inward and outward supplies of goods, services, or a combination of both
• Inventory of goods
• Input Tax Credit (ITC) claimed
• Output tax that is due and already settled
• Any other specific details mandated by law

For a comprehensive overview, refer to our article on the list of records to be maintained under GST.

Specific Accounts Required for GST Compliance

Our detailed article outlines the various accounts that businesses must maintain to comply with GST regulations. For instance, in addition to standard accounts like purchases, sales, and stock, a trader operating under GST needs to keep the following specific accounts:

• Input Central Goods and Services Tax (CGST) account
• Output Central Goods and Services Tax (CGST) account
• Input State Goods and Services Tax (SGST) account
• Output State Goods and Services Tax (SGST) account
• Input Integrated Goods and Services Tax (IGST) account
• Output Integrated Goods and Services Tax (IGST) account
• Electronic Cash Ledger (managed on the official GST portal for tax payments)

GST Accounting Procedures

Despite initial complexities during its implementation, GST is expected to clarify many aspects of business operations, particularly in accounting and bookkeeping.

Although it may seem that GST requires maintaining a greater number of accounts, understanding the accounting entries can simplify the record-keeping process.

A significant benefit for traders is the ability to offset input tax paid on services against their output tax liability from sales. Our discussions cover the accounting treatment for various GST transactions, including how to record and process entries for inter-state sales of goods and the utilization of input tax credit.

Digital Ledgers for Cash and Credit Under GST

Each registered taxpayer receives three electronic ledgers that are automatically generated upon registration and maintained digitally:

• Electronic Cash Ledger: This ledger functions as a digital wallet where taxpayers deposit funds. These deposited amounts are then used to settle their GST liabilities.
• Electronic Credit Ledger: This account displays the Input Tax Credit (ITC) accumulated from purchases, categorized into IGST, CGST, and SGST. The balance in this ledger can only be used for paying the tax component of GST, not for interest, penalties, or other dues.
• Electronic Liability Ledger: This ledger provides a consolidated view of a taxpayer's total tax obligations for a specific month, after accounting for any set-offs. It is automatically updated by the system.

Record Retention Duration Under GST

The GST Act mandates that every registered taxable entity must preserve their books of accounts and records for a minimum of 72 months (six years). This retention period begins from the final date for filing the annual return for that specific financial year.

Typically, the deadline for filing the annual return is December 31st of the subsequent year. For instance, for the financial year 2017-2018, with an annual return due date of December 31st, 2018, the records must be retained until December 31st, 2024.

Should the taxpayer be involved in any official proceedings, such as an appeal before an authority or an ongoing investigation, the records must be kept for an additional year beyond the date when the order for such proceedings or appeal is issued.

Ramifications of Inadequate Record Keeping

Failure by a taxpayer to maintain appropriate records for goods or services can lead to severe consequences.

In such cases, the relevant officer is authorized to deem any unaccounted goods or services as if they had been supplied by the taxpayer. The officer will then assess the tax liability on these undeclared goods or services.

Consequently, the taxable individual will be obligated to pay the determined tax liability, along with any applicable penalties.