Library / Goods and Services Tax: The Professional's Master Guide

42. GST in Books of Account and Financial Statements

GST collected on sales is not the business's income, and GST paid on eligible purchases is not its expense. Both are balances with the Government. Good ledger design keeps these balances visible, ties them to the electronic ledgers on the portal and makes reconciliation a routine task.

42.1 Ledger Design

Ledger	Nature	Ties to
Output CGST, SGST, IGST (separate for each GSTIN)	Liability	GSTR-1 and GSTR-3B Table 3
Input CGST, SGST, IGST	Asset	GSTR-2B and electronic credit ledger
RCM payable (CGST, SGST, IGST)	Liability	GSTR-3B Table 3.1(d), cash ledger
ITC reversal (rules 37, 37A, 42, 43)	Expense or asset adjustment	GSTR-3B Table 4(B)
Blocked ITC	Expense or part of asset cost	Not claimed in GSTR-3B
Electronic cash ledger	Asset	PMT-06 challans
GST refund receivable	Asset	RFD-01 and refund orders
GST paid under protest or pre-deposit	Asset (claim)	DRC-03, APL-01

42.2 Journal Entries

Illustration 199: One month's entries for Kavya Foods Pvt. Ltd., Gujarat (5% goods)

Intra-State sales Rs. 10,00,000 (CGST Rs. 25,000, SGST Rs. 25,000); inter-State sales Rs. 4,00,000 (IGST Rs. 20,000); intra-State purchases Rs. 6,00,000 (CGST Rs. 15,000, SGST Rs. 15,000); GTA freight Rs. 50,000 under RCM at 5% (CGST Rs. 1,250, SGST Rs. 1,250); legal fees Rs. 80,000 under RCM at 18% (CGST Rs. 7,200, SGST Rs. 7,200).

Entry	Debit (Rs.)	Credit (Rs.)
Debtors Dr 14,70,000; to Sales 14,00,000, Output CGST 25,000, Output SGST 25,000, Output IGST 20,000	14,70,000	14,70,000
Purchases Dr 6,00,000, Input CGST Dr 15,000, Input SGST Dr 15,000; to Creditors 6,30,000	6,30,000	6,30,000
Freight Dr 50,000, Legal fees Dr 80,000; to Creditors 1,30,000	1,30,000	1,30,000
Input CGST Dr 8,450, Input SGST Dr 8,450; to RCM CGST payable 8,450, RCM SGST payable 8,450	16,900	16,900
RCM payable Dr 16,900; to Electronic cash ledger 16,900 (RCM must be paid in cash)	16,900	16,900
Output CGST Dr 23,450; to Input CGST 23,450. Output SGST Dr 23,450; to Input SGST 23,450	46,900	46,900
Output CGST Dr 1,550, Output SGST Dr 1,550, Output IGST Dr 20,000; to Electronic cash ledger 23,100	23,100	23,100

Check: total output tax Rs. 70,000 plus RCM Rs. 16,900 = Rs. 86,900. Credit used Rs. 46,900. Cash paid Rs. 16,900 + Rs. 23,100 = Rs. 40,000 = Rs. 86,900 less Rs. 46,900.

ISD: the head office ISD registration books common input services, then passes a distribution entry in ISD invoices: Branch Input GST Dr, to ISD Input GST. Each branch books the credit received.
Cross charge: services between distinct persons (for example, head office staff support to branches) are invoiced; the supplying GSTIN books output tax and the receiving GSTIN books input tax.
Rule 37 reversal and re-availment: where a supplier is unpaid after 180 days, pass ITC reversal Dr, to Input GST (with interest to P&L); on payment, reverse the entry.
Advances for services: tax on an advance is booked as Output GST with a debit to a GST on advances ledger, adjusted when the invoice is issued.
Export under LUT: no output tax; unutilised ITC is claimed as refund and moved to GST refund receivable.

Illustration 200: Refund of unutilised ITC on exports under LUT

Patel Components exported goods of Rs. 50,00,000 under LUT and made domestic supplies of Rs. 30,00,000 in a quarter. Net ITC Rs. 3,60,000.

Step 1: Refund under rule 89(4) = zero-rated turnover x net ITC / adjusted total turnover = Rs. 50,00,000 x Rs. 3,60,000 / Rs. 80,00,000 = Rs. 2,25,000.

Step 2: On filing RFD-01, the credit ledger is debited: GST refund receivable Dr Rs. 2,25,000; to Input GST Rs. 2,25,000. On receipt: Bank Dr; to GST refund receivable.

42.3 Accounting Standards

Revenue (Ind AS 115): the transaction price excludes amounts collected on behalf of third parties, such as GST. Revenue is therefore shown net of GST. Where the entity is an agent, for example an e-commerce operator collecting TCS, only its commission is revenue.

Inventories (Ind AS 2 and AS 2): cost of purchase excludes taxes subsequently recoverable. GST that is not recoverable, such as for a composition dealer, an exempt business or blocked credits, is part of the cost of inventory.

Property, plant and equipment (Ind AS 16): cost includes non-refundable purchase taxes. Blocked credit under section 17(5) is capitalised with the asset and depreciated.

Illustration 201: Blocked credit capitalised

Sharma Textiles Pvt. Ltd. buys a car for a director at Rs. 9,00,000 plus GST at 18% of Rs. 1,62,000. The credit is blocked under section 17(5)(a). The asset is recorded at Rs. 10,62,000 and depreciated on that amount.

A composition dealer buying packing material for Rs. 1,00,000 plus 18% GST records inventory at Rs. 1,18,000, since it cannot take credit.

Contingent liabilities (Ind AS 37 and Schedule III): GST demands under appeal are disclosed as contingent liabilities where an outflow is possible but not probable; where it is probable, a provision is made. Pre-deposits are shown as assets. CARO 2020 clause 3(vii) requires the auditor to report undisputed statutory dues outstanding for more than six months and disputed dues not deposited, with the forum where the dispute is pending.

42.4 Income Tax Interplay

GST collected is a liability and is not income. GST paid is deductible only on actual payment under section 37 of the Income-tax Act, 2025, which corresponds to section 43B of the old Act. Blocked credits form part of the expense or asset cost. Interest under section 50 is generally treated as compensatory, while penalties for breach of law are not allowable. The tax audit report under the new Act (Form 26) calls for GST-related particulars, including turnover and, where the form so requires, expenditure with registered, unregistered and composition suppliers. See the companion guide on the Income-tax Act, 2025 for the current requirements.

Chapter summary

• Keep separate output, input, RCM, reversal and refund ledgers for each GSTIN, tied to specific return tables.

• RCM is paid in cash and the credit taken in the same period; the month's cash payment equals total liability less credit used.

• Revenue under Ind AS 115 excludes GST; non-recoverable GST is part of inventory and asset cost under Ind AS 2 and Ind AS 16.

• Disputed demands are contingent liabilities or provisions under Ind AS 37; CARO 2020 clause 3(vii) reports statutory dues.

• GST is deductible on actual payment under section 37 of the Income-tax Act, 2025; penalties are not deductible.