Introduction to GST Accounting
The Goods and Services Tax (GST) replaced India's complex indirect tax structure — excise duty, service tax, VAT, CST and several cesses — with a unified, destination-based consumption tax from 1 July 2017. Every registered taxpayer must record GST-related transactions accurately in the books of accounts to ensure correct return filing, input tax credit (ITC) claims, and compliance with the CGST Act, 2017 and state GST laws.
Unlike the erstwhile regime where different taxes had different accounting treatments, GST accounting revolves around a few key ledger accounts: CGST Input, SGST Input, IGST Input, CGST Output, SGST Output, IGST Output, Electronic Cash Ledger, and Electronic Credit Ledger. Understanding how these accounts interact is essential for every accountant, CA student, and business owner.
Key GST Ledger Accounts
Before recording journal entries, set up the following ledger accounts in your accounting software:
- Input CGST A/c — Central GST paid on purchases (intra-state)
- Input SGST A/c — State GST paid on purchases (intra-state)
- Input IGST A/c — Integrated GST paid on purchases (inter-state)
- Output CGST A/c — Central GST collected on sales (intra-state)
- Output SGST A/c — State GST collected on sales (intra-state)
- Output IGST A/c — Integrated GST collected on sales (inter-state)
- GST Payable A/c — Net tax liability after ITC set-off
- Electronic Cash Ledger A/c — Cash deposited for GST payment
- RCM GST Input A/c / RCM GST Output A/c — For reverse charge transactions
Intra-State Purchase (CGST + SGST)
When goods or services are purchased from a supplier within the same state, CGST and SGST are levied equally. For example, a purchase of goods worth Rs 1,00,000 at 18% GST (9% CGST + 9% SGST) from a supplier in the same state:
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Purchase A/c Dr. | 1,00,000 | — |
| Input CGST A/c Dr. | 9,000 | — |
| Input SGST A/c Dr. | 9,000 | — |
| To Creditor / Bank A/c | — | 1,18,000 |
(Being goods purchased within the state at 18% GST — 9% CGST and 9% SGST)
Inter-State Purchase (IGST)
When goods or services are purchased from a supplier in a different state, IGST is levied. For a purchase of Rs 2,00,000 at 12% IGST:
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Purchase A/c Dr. | 2,00,000 | — |
| Input IGST A/c Dr. | 24,000 | — |
| To Creditor / Bank A/c | — | 2,24,000 |
Intra-State Sale (CGST + SGST)
When goods are sold to a buyer within the same state, collect CGST and SGST. For a sale of Rs 1,50,000 at 18% GST:
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Debtor / Bank A/c Dr. | 1,77,000 | — |
| To Sales A/c | — | 1,50,000 |
| To Output CGST A/c | — | 13,500 |
| To Output SGST A/c | — | 13,500 |
Inter-State Sale (IGST)
For inter-state sales, IGST is collected. Sale of Rs 3,00,000 at 18% IGST:
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Debtor / Bank A/c Dr. | 3,54,000 | — |
| To Sales A/c | — | 3,00,000 |
| To Output IGST A/c | — | 54,000 |
Input Tax Credit (ITC) Set-Off Entry
At the end of the tax period, the registered person must set off output tax liability against available input tax credit. The order of ITC utilisation as per the CGST (Amendment) Act and Circular No. 98/17/2019-GST is:
- IGST Input — first set off against IGST Output, then CGST Output, then SGST Output
- CGST Input — set off against CGST Output, then IGST Output (cannot be used against SGST)
- SGST Input — set off against SGST Output, then IGST Output (cannot be used against CGST)
Suppose at month-end: Output CGST = Rs 13,500, Output SGST = Rs 13,500, Input CGST = Rs 9,000, Input SGST = Rs 9,000. The set-off entry:
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Output CGST A/c Dr. | 13,500 | — |
| Output SGST A/c Dr. | 13,500 | — |
| To Input CGST A/c | — | 9,000 |
| To Input SGST A/c | — | 9,000 |
| To GST Payable A/c (CGST) | — | 4,500 |
| To GST Payable A/c (SGST) | — | 4,500 |
Reverse Charge Mechanism (RCM) Entries
Under Section 9(3) and 9(4) of the CGST Act, the recipient is liable to pay GST on certain notified supplies. In RCM, the recipient records both the output liability and the input credit. For an intra-state purchase of Rs 50,000 under RCM at 18%:
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Purchase / Expense A/c Dr. | 50,000 | — |
| Input CGST (RCM) A/c Dr. | 4,500 | — |
| Input SGST (RCM) A/c Dr. | 4,500 | — |
| To Creditor / Bank A/c | — | 50,000 |
| To Output CGST (RCM) A/c | — | 4,500 |
| To Output SGST (RCM) A/c | — | 4,500 |
The RCM output liability must be paid in cash only — it cannot be set off against ITC. However, the ITC on RCM can be used to set off other output liabilities.
GST on Advance Received
When an advance is received from a customer before supply, GST is applicable at the time of receipt of advance (for services). For an advance of Rs 1,00,000 received for an intra-state service at 18% GST:
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Bank A/c Dr. | 1,00,000 | — |
| To Advance from Customer A/c | — | 84,746 |
| To Output CGST A/c | — | 7,627 |
| To Output SGST A/c | — | 7,627 |
Note: GST is calculated on reverse basis — Rs 1,00,000 x 18/118 = Rs 15,254 (split equally between CGST and SGST).
GST Payment to Government
When the net GST liability (after ITC set-off) is paid to the government through the GST portal:
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| GST Payable A/c (CGST) Dr. | 4,500 | — |
| GST Payable A/c (SGST) Dr. | 4,500 | — |
| To Bank A/c (Electronic Cash Ledger) | — | 9,000 |
Summary of GST Accounting Entries
| Transaction | Debit | Credit |
|---|---|---|
| Intra-State Purchase | Purchase, Input CGST, Input SGST | Creditor/Bank |
| Inter-State Purchase | Purchase, Input IGST | Creditor/Bank |
| Intra-State Sale | Debtor/Bank | Sales, Output CGST, Output SGST |
| Inter-State Sale | Debtor/Bank | Sales, Output IGST |
| ITC Set-off | Output GST A/cs | Input GST A/cs, GST Payable |
| RCM Purchase | Purchase, Input GST (RCM) | Creditor, Output GST (RCM) |
| GST Payment | GST Payable A/c | Bank / Electronic Cash Ledger |
Conclusion
Accurate GST accounting entries are critical for compliance, ITC reconciliation, and smooth return filing. Whether you use Tally, Zoho Books, or any ERP, the underlying double-entry logic remains the same — debit input GST on purchases, credit output GST on sales, set off at month-end, and pay the net liability to the government. Understanding the order of ITC utilisation and RCM provisions ensures that your books are always audit-ready.
At TaxClue, our team of qualified CAs and tax professionals assists businesses with GST accounting, return filing, and compliance. Contact us for expert assistance.