Explanation about gst tax on journal entries for ca foundation

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Goods and Services Tax, or GST, is a comprehensive indirect tax system that has revolutionized business accounting in India. Unlike traditional taxes, GST is not treated as an expense in accounting records. Instead, it creates assets when paid on purchases, called Input GST, and liabilities when collected on sales, called Output GST. The GST structure consists of three main components: CGST collected by the central government, SGST collected by state governments for intra-state transactions, and IGST for inter-state transactions. The tax rates are structured at 5%, 12%, 18%, and 28% depending on the nature of goods and services. GST accounting requires understanding of specific account types. Input GST is an asset account with a debit balance, representing GST paid on purchases that can be recovered from the government. Output GST is a liability account with a credit balance, representing GST collected on sales that must be paid to the government. For intra-state transactions, we use separate CGST and SGST accounts, while inter-state transactions use IGST accounts. In the balance sheet, Input GST appears under current assets, while Output GST appears under current liabilities. The T-account format helps visualize these account behaviors clearly. Purchase transactions with GST involve recording both the purchase amount and Input GST separately. For intra-state purchases, GST is split equally between CGST and SGST accounts. For example, a purchase of goods worth ten thousand rupees with eighteen percent GST would be recorded as: Purchase account debited with ten thousand, CGST account debited with nine hundred, SGST account debited with nine hundred, and Supplier account credited with eleven thousand eight hundred. For inter-state purchases, we use IGST instead of CGST and SGST. The calculation process involves determining the basic amount, calculating total GST, splitting it appropriately, and arriving at the total invoice value. Input GST becomes an asset that can be set off against future Output GST liability. Sales transactions with GST create Output GST liability that must be paid to the government. Unlike purchases where GST is debited as an asset, in sales GST accounts are credited as liabilities. For intra-state sales, we credit separate CGST and SGST accounts, while inter-state sales credit IGST account. For example, a sale of goods worth fifteen thousand rupees with eighteen percent GST would be recorded as: Customer account debited with seventeen thousand seven hundred, Sales account credited with fifteen thousand, CGST account credited with thirteen fifty, and SGST account credited with thirteen fifty. The key difference from purchase transactions is that Output GST creates a liability to be paid to the government, while Input GST creates an asset recoverable from the government. When calculating GST on sales with discounts, GST is applied to the discounted amount, not the original price. GST return filing is the culmination of all GST journal entries recorded during the month. The process involves reconciling Input GST from purchases with Output GST from sales to determine net GST liability. If Output GST exceeds Input GST, the business has a net liability to pay to the government. The payment entry involves debiting respective GST accounts and crediting Bank account. Conversely, if Input GST exceeds Output GST, the business is entitled to a refund, recorded by debiting GST Refund Receivable and crediting Input GST account. The monthly GST cycle includes recording all transactions, calculating net GST position, filing the return, and making payment. This systematic approach ensures compliance with GST regulations and proper accounting treatment of all GST-related transactions.