A GST journal entry records all GST-related business transactions in the books of accounts. It helps track GST input and output, monitor GST payable, and ensure proper compliance. The correct journal entry for GST payable or receivable depends on whether it’s a purchase or sales transaction. In simple terms, a GST journal entry shows how GST affects your accounting books and how to record the right taxes under the GST law. This entry can include CGST, SGST, and IGST for local or interstate dealings. GST in India needs proper recording to avoid legal issues and ensure transparency in accounts.
What is GST?
GST (Goods and Services Tax) is a comprehensive, multi-stage, destination-based indirect tax levied on the supply of goods and services in India. It replaced multiple indirect taxes like VAT, service tax, and excise duty, aiming to simplify the tax structure. GST is collected at every stage of the supply chain, with credits available for tax paid on previous stages, ensuring transparency and eliminating the cascading effect of taxes.
How to Pass GST Journal Entry in Tally?
Tally is the most used accounting software by Indian businesses. Recording GST entries in Tally ensures businesses keep proper records and file accurate GST returns. Let’s understand how to pass different types of GST journal entries in Tally. In Tally, you pass GST journal entries using purchase vouchers, sales vouchers, and journal vouchers. You must select the correct tax ledger, such as CGST, SGST, or IGST, depending on the nature of the transaction. Before passing a GST accounting entry in Tally, you must activate GST features under statutory settings.
For example, if a company purchases goods worth ₹1,00,000 plus 18% GST, the entry will include Input CGST ₹9,000 and Input SGST ₹9,000. Tally automatically applies these ledgers if GST is enabled.
Steps to Pass GST Entry in Tally
Tally allows automatic tax calculations if you set it up properly. GST journal entry in Tally Prime is similar to older Tally versions, but Tally Prime has a cleaner layout and simpler navigation. The following steps help create the correct input GST journal entry or output GST journal entry based on the transaction type
- Open Accounting Vouchers: This is the section in accounting software (like Tally) where transactions are recorded. It allows users to enter vouchers for different types of business activities such as purchases, sales, payments, and receipts.
- Select Purchase (F9) or Sales (F8): Pressing F9 opens the Purchase Voucher screen to record goods or services bought, while F8 opens the Sales Voucher screen for recording goods or services sold. These shortcuts streamline voucher entry in software like Tally.
- Enable GST Configuration: Before recording GST-related transactions, GST must be enabled in the company’s features or settings. This allows tax fields like GST rates, HSN/SAC codes, and tax ledgers to appear during voucher entry.
- Add GST Details for Items: Each item must have associated GST information such as rate, tax classification (goods/services), and HSN/SAC code. These details ensure correct tax calculations and compliance.
- Use Proper Tax Ledgers like CGST, SGST, or IGST: While entering the transaction, the appropriate tax ledgers should be selected based on the nature of the transaction. For example, CGST and SGST for intra-state sales, IGST for inter-state sales.
- Check Whether It’s an Intra-State or Inter-State Transaction: Determining the location of the buyer and seller is important to apply the correct GST structure. Intra-state attracts CGST + SGST, while inter-state transactions attract IGST.
Journal Voucher for GST Adjustment Entry
Sometimes, businesses pass manual journal vouchers for GST adjustment entries. This entry happens when GST needs to be reversed or adjusted against the output GST. For example, input GST may be adjusted more than output GST.
Example Of Gst Adjustment Journal Entry
| Particulars | Debit (₹) | Credit (₹) |
| Output CGST A/c | 5,000 | |
| Output SGST A/c | 5,000 | |
| To Input CGST A/c | 5,000 | |
| To Input SGST A/c | 5,000 |
This type of journal entry under GST happens during monthly or quarterly GST filing.
GST Journal Entry Examples for Purchase and Sales
GST Journal Entry Examples for Purchases and Sales help in understanding how to properly record transactions involving Goods and Services Tax. Under the GST system, businesses must account for input tax (GST paid on purchases) and output tax (GST collected on sales). These entries ensure compliance with tax regulations and accurate reflection of liabilities and credits in financial records. By recording these transactions correctly, businesses can track tax payable and claim input tax credit efficiently. Understanding these entries is essential for accurate accounting, tax filing, and maintaining proper books of accounts under the GST regime.
GST Journal Entry for Purchase
The GST Journal Entry for Purchase is recorded when a business buys goods or services and pays GST on the transaction. This entry captures both the cost of the purchase and the Input GST, which represents the tax paid that the business can later claim as a credit. Properly recording this entry helps track expenses, manage inventory or services acquired, and ensures accurate reporting of input tax credit in compliance with GST laws. It is a crucial part of bookkeeping for any GST-registered business. When a business buys goods, it pays GST. That GST is recorded as Input GST. The journal entry for GST input credit records the right to claim credit on GST paid.
Example: Goods purchased worth ₹50,000 with 18% GST (9% CGST and 9% SGST).
Journal Entry:
| Particulars | Debit (₹) | Credit (₹) |
| Purchase A/c | 50,000 | |
| Input CGST A/c | 4,500 | |
| Input SGST A/c | 4,500 | |
| To Supplier A/c | 59,000 |
This is a typical GST journal entry for purchase. The GST accounting treatment here is simple – the business adds GST to the purchase cost but can claim credit for it later.
If The Purchase Is Interstate, Igst Is Applied Instead.
Example: Goods purchased worth ₹60,000 with 18% IGST
| Particulars | Debit (₹) | Credit (₹) |
| Purchase A/c | 60,000 | |
| Input IGST A/c | 10,800 | |
| To Supplier A/c | 70,800 |
GST Journal Entry for Sales
The GST Journal Entry for Sales is recorded when a business sells goods or services and charges GST to the customer. This entry reflects both the revenue earned and the Output GST collected, which is a tax liability payable to the government. Accurate recording of this entry is essential to ensure proper tax reporting and to calculate the net GST payable after adjusting input tax credits. It helps maintain compliance with GST regulations and provides a clear view of the business’s financial and tax obligations. When a business sells goods or services, it collects GST. This is called Output GST. It is a liability for the business and needs to be paid to the government.
Example: Goods sold for ₹80,000 plus 18% GST
| Particulars | Debit (₹) | Credit (₹) |
| Debtor A/c | 94,400 | |
| To Sales A/c | 80,000 | |
| To Output CGST A/c | 7,200 | |
| To Output SGST A/c | 7,200 |
This is a GST journal entry for sales. The GST collected becomes a liability until paid or adjusted.
In Case Of Interstate Sale
| Particulars | Debit (₹) | Credit (₹) |
| Debtor A/c | 1,06,200 | |
| To Sales A/c | 90,000 | |
| To Output IGST A/c | 16,200 |
These examples help us understand GST journal entries with examples for both local and interstate dealings.
GST Journal Entry for Input and Output Transactions
The GST journal entry for input and output transactions involves recording both the GST paid on purchases (input GST) and the GST collected on sales (output GST). These entries are essential for tracking tax credits and liabilities under the GST system. Input GST is treated as an asset, as it can be claimed back, while output GST is a liability to be paid to the government. Accurate journal entries for these transactions ensure proper tax compliance, help determine the net GST payable, and maintain transparent financial records. Input and output GST are crucial for GST returns. Every purchase gives input GST, and every sale gives output GST. The journal entry for GST payable arises when the output tax is more than the input tax. If there is more input, then input credit is carried forward.
Input GST Journal Entry
The input GST journal entry is recorded when a business purchases goods or services and pays GST on the transaction. This GST paid is known as input tax, which the business can later claim as a credit against its output GST liability. Recording this entry accurately is essential for tracking input tax credits and ensuring proper compliance with GST regulations. It reflects the tax component as an asset in the books until it is adjusted or claimed.
When you buy goods or services and pay GST, you record it as input GST. This gives the right to take credit. Example:
| Particulars | Debit (₹) | Credit (₹) |
| Purchase A/c | 40,000 | |
| Input CGST A/c | 3,600 | |
| Input SGST A/c | 3,600 | |
| To Vendor A/c | 47,200 |
This is an input GST journal entry. You can adjust this against output tax later.
Output GST Journal Entry
The Output GST Journal Entry is recorded when a business sells goods or services and charges GST to the customer. This collected tax is referred to as Output Tax, and it represents a liability owed to the government. Properly recording this entry ensures that the business accounts for its tax obligations accurately and complies with GST laws. It helps in calculating the net GST payable after adjusting for any Input GST credits. When you sell goods or services, you charge GST. This is your output GST. It is payable to the government. Example:
| Particulars | Debit (₹) | Credit (₹) |
| Customer A/c | 1,18,000 | |
| To Sales A/c | 1,00,000 | |
| To Output CGST A/c | 9,000 | |
| To Output SGST A/c | 9,000 |
Journal Entry for GST Payable
The journal entry for GST payable is recorded to reflect the net amount of GST that a business owes to the government after adjusting input GST against output GST. This entry is essential for accurate tax reporting and ensures that the GST liability is correctly shown in the books. Recording GST payable helps maintain compliance with tax regulations and prepares the business for timely GST filing and payment. At the end of the period, compare output GST and input GST. If the output is higher, pay the difference.
Example: Output CGST: ₹9,000
- Input CGST: ₹7,000
- GST Payable: ₹2,000
Journal Entry for GST Payable:
| Particulars | Debit (₹) | Credit (₹) |
| Output CGST A/c | 2,000 | |
| To GST Payable A/c | 2,000 |
This entry is made monthly or quarterly while filing returns. It’s part of GST accounting entry and helps with tax payments.
GST Reversal Entry
The GST Reversal Entry is recorded when previously claimed Input GST needs to be reversed due to ineligible credit, non-payment to the supplier within a specified period, or return of goods. This entry adjusts the input tax credit (ITC) that can no longer be availed and increases the GST liability. Recording a GST reversal ensures compliance with GST laws and maintains accuracy in tax reporting and financial records. Sometimes, GST input cannot be claimed due to certain reasons. Then, you pass a GST reversal entry.
Example: You reverse ₹500 input CGST
| Particulars | Debit (₹) | Credit (₹) |
| Input CGST A/c | 500 | |
| To Expense A/c | 500 |
This ensures correct GST accounting treatment.
Relevance to ACCA Syllabus
GST (Goods and Services Tax) journal entries are part of the ACCA Financial Accounting (FA) and Financial Reporting (FR) syllabus. These entries help students understand how indirect taxes like GST affect journal records, ledgers, and financial statements. The ACCA exam tests your ability to apply correct accounting treatments, including tax entries like GST, to ensure compliance with IFRS and local laws in financial reports.
GST Journal Entry ACCA Questions
Q1. What is the correct journal entry when a business makes a purchase, and the supplier charges GST?
A) Purchase A/c Dr, To Cash A/c
B) Purchase A/c Dr, GST Recoverable A/c Dr, To Creditors A/c
C) GST Payable A/c Dr, To Purchase A/c
D) Creditors A/c Dr, To Purchase A/c, To GST Payable A/c
Ans: B) Purchase A/c Dr, GST Recoverable A/c Dr, To Creditors A/c
Q2. When a company sells goods and collects GST from the customer, which account is credited?
A) Sales A/c
B) GST Payable A/c
C) GST Recoverable A/c
D) Revenue Reserve A/c
Ans: B) GST Payable A/c
Q3. What type of account is the GST Payable account?
A) Asset
B) Expense
C) Liability
D) Income
Ans: C) Liability
Q4. Which of the following best reflects the purpose of GST journal entries in accounting?
A) To calculate corporate tax liability
B) To show profit margin on goods
C) To ensure the correct treatment of indirect taxes
D) To record depreciation
Ans: C) To ensure correct treatment of indirect taxes
Q5. In the trial balance, where do you show GST Recoverable?
A) Credit side under Current Liabilities
B) Debit side under Current Assets
C) Credit side under Equity
D) Not shown in the trial balance
Ans: B) Debit side under Current Assets
Relevance to US CMA Syllabus
The US CMA syllabus emphasizes internal controls and tax accounting in Part 1 (Financial Reporting) and Part 2 (Corporate Finance). Understanding GST journal entries is essential for CMAs working in global environments where indirect tax systems like GST affect income reporting and cost structures.
GST Journal Entry CMA Questions
Q1. How is GST recorded when a firm pays for a service and incurs GST?
A) GST Expense A/c Dr
B) Input GST A/c Dr
C) Output GST A/c Dr
D) Purchase A/c Cr
Ans: B) Input GST A/c Dr
Q2. Which journal entry correctly reflects GST on services rendered?
A) Bank A/c Dr, To Sales A/c
B) Bank A/c Dr, To Output GST A/c
C) Bank A/c Dr, Output GST A/c Dr, To Service Revenue A/c
D) Bank A/c Dr, To Service Revenue A/c, To Output GST A/c
Ans: D) Bank A/c Dr, To Service Revenue A/c, To Output GST A/c
Q3. How do CMAs ensure accurate financial reporting of GST?
A) By auditing journal entries annually
B) By performing monthly tax reconciliations
C) By adjusting sales revenue monthly
D) By changing the accounting method frequently
Ans: B) By performing monthly tax reconciliations
Q4. In GST accounting, what happens if input GST is greater than output GST?
A) It becomes a liability
B) It results in a tax refund or credit
C) It is recorded as income
D) It increases gross profit
Ans: B) It results in a tax refund or credit
Q5. Which account do you debit when GST is paid on capital goods?
A) GST Payable A/c
B) Capital A/c
C) Input GST A/c
D) Fixed Assets A/c
Ans: C) Input GST A/c
Relevance to US CPA Syllabus
The US CPA syllabus covers financial accounting and reporting for tax transactions. GST is relevant in the REG (Regulation) and FAR (Financial Accounting and Reporting) sections, especially when understanding indirect tax journal entries for businesses that operate in jurisdictions using GST.
GST Journal Entry CPA Questions
Q1. What is the correct journal entry when a company receives a supplier invoice, including GST?
A) Inventory A/c Dr, To Accounts Payable
B) Inventory A/c Dr, Input GST A/c Dr, To Accounts Payable
C) Inventory A/c Dr, To Input GST A/c
D) Accounts Payable Dr, To Inventory A/c
Ans: B) Inventory A/c Dr, Input GST A/c Dr, To Accounts Payable
Q2. How is GST treated in the income statement under accrual accounting?
A) As revenue
B) As a liability
C) As part of net sales
D) It is excluded from revenue
Ans: D) It is excluded from the revenue
Q3. If the collected GST exceeds the paid GST, what does the business owe?
A) Income Tax
B) Deferred Tax
C) GST Payable
D) GST Receivable
Ans: C) GST Payable
Q4. Which of the following is true about GST in journal entries?
A) It only affects expenses
B) It reduces revenue
C) It creates both assets and liabilities
D) It is not recorded in accrual systems
Ans: C) It creates both assets and liabilities
Q5. GST collected from customers should be reported as:
A) Income
B) Payable Liability
C) Expense
D) Retained Earnings
Ans: B) Payable Liability
Relevance to CFA Syllabus
The CFA syllabus doesn’t directly cover journal entries like GST, it focuses on financial reporting and analysis in global settings. Understanding GST journal entries helps CFA candidates analyze how indirect taxes affect income recognition, liabilities, and net revenue in financial statements.
GST Journal Entry CFA Questions
Q1. What effect does GST have on a company’s income statement?
A) Increases operating income
B) Increases revenue
C) Reduces net sales
D) No effect if reported properly
Ans: D) No effect if reported properly
Q2. How should GST be treated in revenue analysis?
A) Included in gross revenue
B) Excluded from net revenue
C) Treated as income
D) Included under other operating income
Ans: B) Excluded from net revenue
Q3. Which financial ratio is directly impacted by GST accounting?
A) Debt-Equity Ratio
B) Current Ratio
C) Gross Margin
D) Operating Margin
Ans: B) Current Ratio
Q4. A business has higher input GST than output GST. What is its position?
A) Liable to the government
B) Entitled to receive a refund
C) Needs to adjust P&L
D) Pays GST penalty
Ans: B) Entitled to receive a refund
Q5. For financial analysis, where should GST payable appear?
A) Long-term Liabilities
B) Shareholder’s Equity
C) Non-Operating Expenses
D) Current Liabilities
Ans: D) Current Liabilities
