As we all know that GST was implemented wef 01/07/2017 hence during financial year there will have to be prepared two Financial statements one for three months for the period 01/04/2017 to 30/06/2017 and another for the remaining 9 months.Starting from this post we will try to explain various steps required to prepare the accounts under GST era
Preparing the accounts for the Pre GST period of 3 months:
Dealers were required to file trans 1 wherein it was required to declare the amount of direct and indirect taxes involved in the closing stock as on 30/06/2017 which we presume that maximum would have filed and if not filed for whatsoever reason now it is deemed to never have been filed so first thing to be considered is that the figures declared in TRANS 1 must match with the books of accounts .Just to recall we reproduce TRANS 1 below:
Now based upon the columns given in TRANS 1 above we have tried to explain the accounting entries required to be passed as also where no entries have to be passed
Please note that these entries will be passed in the books of accounts starting on 01/07/2017 and no entries will be passed in books closed on 30/06/2017
Reconciliation of GST ITC as on 31/03/2018 with that in system populated GST as on 31/03/2018
Though the GST was meant to tally with that populated by the portal but due to technical glitches the system is yet not fully operational so it becomes even more important that the reconciliation part is looked into with utmost care.
Reversal of Input Tax credit in case of non payment beyond 180 days:
Section 16 of CGST Act, 2017 says:
(1) Every registered person ……………..
(2) Notwithstanding anything …………………
Provided that …………………………….
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed
that is if Recipient of goods/services fails to pay to the supplier (Including Taxes), within 180 days from the date of issue of invoice, the Input Credit shall be reversed.
In terms of accounting it means that one has to observe age wise creditors and then find those whose outstanding is beyond 180 days .The input credit related to them on account of purchases has to be reversed.Not only this interest also has to be paid.
The relevant rules are appended below for reference:
Provisions under Rule 37 of the Central Goods and Services Tax (CGST) Rules, 2017 relating to “Reversal of Input Tax Credit in the case of Non-payment of Consideration”, as per CGST (2nd Amendment) Rules 2017 notified by CBEC on 28 June 2017, applicable w.e.f. 1st July 2017, are as under:
(1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof, the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section (2) of section 16, shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice:
Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
(2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.
(3) The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid.
(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter,that had been reversed earlier.
The rule also provides such reversed amount is available for re-credit once the payment for the supplies is made.
Accounting entries to be passed if payment not made within 180 days :
Debit the CGST Reconciliation a/c and GST Reconciliation a/c and Credit the corresponding GST liability account.
Once the payments are made the corresponding entries can be reversed
As is clear from above that a new account by the name GST Reconciliation has to be opened which will carry the figures of GST reversals in any case and further that the balance lying if any in this account should be matched with GSTR 2 for the month in which the balance is created and the reversal should match with the GSTR 1 of the month in which it is reversed subsequently (means in which month the creditor is finally paid)
In next post of this series we will try to analyse finalisation of accounts with manufacturing as activity