GST ACCOUNTING

I         Accounting treatment for GST credit in case of inputs/supplies

1. With a view to recommend appropriate accounting treatment for GST credit, it would be useful to note the requirements of para 6 and 7 of Accounting Standard (AS) 2, ‘Valuation of Inventories’, issued by the Institute of Chartered Accountants of India, dealing with ‘cost of inventories’ and ‘costs of purchase’ which are as below:

“The cost of inventories should comprise all costs of purchases, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.”

   “The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase.”

Cost of purchase shall consist of only those taxes which are not subsequently recoverable by the enterprise from the taxing authorities. Since the tax paid on inputs is available for set-off against the tax payable on sales or is refundable, it is of the nature of taxes recoverable from taxing authorities and accordingly, input tax paid should not be included in the costs of purchase.

2. In view of the above, the amount of tax paid on purchase of inputs/ supplies and available for GST credit should be debited to a separate account, say, GST Credit Receivable (Inputs) Account. As and when GST credit is actually utilised against GST payable on sales, appropriate accounting entries will be required to record the adjustment, i.e., GST Credit Receivable (Inputs) Account should be credited with a corresponding debit to the account maintained for tax payable on sales. The debit balance in GST Credit Receivable (Inputs) Account, at the year-end, should be shown on the ‘Assets’ side of the balance sheet under the head ‘Loans and Advances’.

3. A dealer may purchase certain common inputs which are to be used for making taxable sales as well as for making exempt sales. In such a case, the dealer, on the date of purchase, should estimate inputs expected to be used for making taxable sales and for making exempt sales. The dealer should recognise GST credit only in respect of those inputs which are expected to be used for making taxable sales and no GST credit should be recognised in respect of inputs expected to be used for making exempt sales. Subsequently, in case the actual use is different from the estimated use, the dealer should pass an appropriate adjustment entry for the same. Similarly, in the case of stock transfer/consignment sale of goods out of the State where GST credit is available only to the extent of a certain portion of input tax paid, the dealer should make an estimate of the expected stock transfers/ consignment sales and account for accordingly.

• Others points relating to GST accounting is on next articles

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