To explain this section, let us consider some basic business transactions as examples (all amounts are exclusive of GST).
Illustration 1: Intra-State Purchase
- Mr. X purchased goods valued at Rs. 100,000 locally on 14th April 2023.
- On 15th April 2023, he sold them for Rs. 150,000 in the same state.
- An additional legal consultation fee of Rs. 5000 was also paid by him on 18th April 2023.
- He purchased office furniture valued at Rs. 12000 on 28th April 2023.
The CGST and SGST charged 2.5% respectively, on the goods traded, 9% for legal consultation fees, and 14% for furniture.
How the entries for this scenario will look like under GST?
| Date | Particulars | Debit (Amt in Rs) | Credit (Amt in Rs) |
|---|---|---|---|
| 14/4/23 | Purchase A/c ………………Dr. | 1,00,000 | |
| Input CGST A/c ……………Dr. | 2,500 | ||
| Input SGST A/c ………….…Dr. | 2,500 | ||
| To Creditors A/c | 1,05,000 | ||
| (Being purchase of goods to be traded, bearing GST of 5% in total) | |||
| 15/4/23 | Debtors A/c ………………Dr. | 1,57,500 | |
| To Sales A/c | 1,50,000 | ||
| To Output CGST A/c | 3,750 | ||
| To Output SGST A/c | 3,750 | ||
| (Being sale of the goods to customers, bearing GST of 5% in total) | |||
| 18/4/23 | Legal fees A/c ………..……Dr. | 5,000 | |
| Input CGST A/c ……………Dr. | 450 | ||
| Input SGST A/c ……………Dr. | 450 | ||
| To Bank A/c | 5,900 | ||
| (Being the payment of legal fees for consultation services obtained for consumer court cases) | |||
| 28/4/23 | Furniture A/c ………..……Dr. | 12,000 | |
| Input CGST A/c ……………Dr. | 1,680 | ||
| Input SGST A/c ……………Dr. | 1,680 | ||
| To ABC Furniture Shop A/c | 15,360 | ||
| (Being purchase of furniture for the shop from ABC Furniture Shop on credit scheme) |
- Total Input CGST=2,500+450+1,680= Rs. 4,630
- Total Input SGST=2,500+450+1,680= Rs. 4,630
- Total output CGST=7,500
- Total output SGST=7,500
Therefore, the net CGST payable is 7,500-4,630 = 2,870 and the net SGST payable is 7,500-4,630 = 2,870.
| Data | Particulars | Debit (Amt in Rs) | Credit (Amt in Rs) |
|---|---|---|---|
| 19/5/23 | Output CGST A/c ……………Dr. | 7,500 | |
| Output SGST A/c ……………Dr. | 7,500 | ||
| To Input CGST A/c | 4,630 | ||
| To Input SGST A/c | 4,630 | ||
| To Electronic Cash Ledger A/c | 5,740 | ||
| (Being the payment of GST liability by utilizing the ITC for CGST and SGST for the tax period) |
Due to input tax credit, tax liability which was Rs. 15000was reduced to only Rs. 5740. Further, GST on legal fees can be utilized to set off against the GST payable on the goods sold, which was impossible in the previous tax system. For any surplus input tax credit, it will get carried forward to the next year.
Illustration 2: Inter-State
- Mr. X purchased goods worth Rs. 150,000 from outside the state on 1st May 2023.
- He sold the goods locally for Rs. 150,000 on 4th May 2023
- He sold goods worth Rs. 100,000 outside the state on 12th May 2023
- He paid a telephone bill for the month of April 2023 of Rs. 5000 on 14th May 2023
- An air cooler of Rs. 12000 was purchased by him locally for his office on 25th May 2023.
The CGST and SGST are charged at 2.5% of goods traded, 9% on telephone bills, and 14% on air conditioners.
The entries will look like this:
| Data | Particulars | Debit (Amt in Rs) | Credit (Amt in Rs) |
|---|---|---|---|
| 1/5/23 | Purchase A/c ………………Dr. | 1,50,000 | |
| Input CGST A/c ……………Dr. | 7,500 | ||
| To Creditors A/c | 1,57,500 | ||
| (Being purchase of goods to be traded, bearing GST of 5% in total) | 1,16,000 | ||
| 4/5/23 | Debtors A/c ………………Dr. | 1,57,000 | |
| To Sales A/c | 1,50,000 | ||
| To Output CGST A/c | 3,750 | ||
| To Output SGST A/c | 3,750 | ||
| (Being sale of goods to be traded, bearing GST of 5% in total) | |||
| 12/5/23 | Debtors A/c ………………Dr. | 1,05,000 | |
| To Sales A/c. | 1,00,000 | ||
| To Output CGST A/c | 5,000 | ||
| (Being sale of goods to be traded, bearing GST of 5% in total) | |||
| 5,900 | |||
| 14/5/23 | Telephone Expenses A/c ..…Dr. | 5,000 | |
| Input CGST A/c ……………Dr. | 450 | ||
| Input SGST A/c ……………Dr. | 450 | ||
| To Bank A/c | 5900 | ||
| (Being the payment of the telephone bill for April 2023) | |||
| 25/5/23 | Office Equipment A/c.…..Dr | 12,000 | |
| Input CGST A/c ……………Dr. | 1,680 | ||
| Input SGST A/c ……………Dr. | 1,680 | ||
| To Bank A/c | 15,360 | ||
| (Being purchase of air cooler for the shop from the local store via online payment) |
- Total CGST input =450+1,680=2,130
- Total CGST output =3,750
- Total SGST input =450+1,680=2,130
- Total SGST output =3,750
- Total IGST input =7,500
- Total IGST output =5,000
| Particulars | CGST | SGST | IGST |
|---|---|---|---|
| Output liability | 3,750> | 3,750 | 5,000 |
| Less: Input tax credit | |||
| IGST | 2,500 | – | 5,000 |
| CGST | 1,250 | – | – |
| SGST | – | 2,130 | – |
| Amount payable | NIL | 1,620 | NIL |
The IGST credit will first be utilized to set off IGST and then CGST or SGST, in any order. So, from the total input IGST of Rs.7,500, firstly it will be completely set off against IGST. So, the setoff entries will be-
| 1 | Setoff against CGST output | ||
|---|---|---|---|
| Output CGST ………………Dr. | 3,750 | ||
| To Input CGST A/c | 1,250 | ||
| To Input IGST A/c | 2,500 | ||
| (Being offset of CGST liability for the tax period, using the credit of IGST and CGST) | |||
| 2 | Setoff against IGST output | ||
| Output IGST ………………Dr. | 5,000 | ||
| To Input IGST A/c | 5,000 | ||
| (Being offset of the tax credit of IGST towards the output IGST liability for the tax period) | |||
| 3 | Setoff against SGST output | ||
| Output SGST ………………Dr. | 3,750 | ||
| To Input SGST A/c | 2,130 | ||
| To Electronic cash ledger A/c | 1,620 | ||
| (Being the balance liability of SGST for the tax period after the offset of the tax credit of SGST transferred to the electronic cash ledger of SGST) | |||
| 4 | Final payment | ||
| Electronic cash ledger A/c. | 1,620 | ||
| To Bank A/c | 1,620 | ||
| (Being payment of SGST for the tax period) |
