IndiaFilings » Learn » GST Accounting and Compliance

GST Accounting and Compliance


GST Accounting and Compliance

All the taxpayers in India should register with GST and maintain proper accounts. The framework of GST shall uproot the existing taxation methods. The new tax framework shall reach to the core of a business that requires a total overhaul of the business. In addition, it shall also include finance, financial reporting, as well as accounting systems. As management teams start evaluating these changes, they shall also require factoring changes in financial reporting as well as in indirect tax accounting. In this article, let us look at some of the major GST accounting and compliance changes expected on GST rollout in India.

Annual Revenue

The taxpayer shall implement the GST accounting and compliance for filing annual returns henceforth. Under India Accounting Standards (IND AS), the taxpayer shall incorporate the excise duty in revenue. It shall apply in revenue as the tax shall reflect as production-based. The taxpayer shall not incorporate Sales tax and VAT in revenue as it applies at the time of sales. The law treats the GST as a destination-based tax. Hence it shall apply at the point of supply. Therefore the GST would not be presented as a part of revenue. As the excise duty incorporates with the revenue, chances of volatility may exist in reported revenue numbers.

Tax Credit

GST could bring significant benefits to organizations through the tax credit. Currently, organizations do not get for indirect taxes like luxury tax, Octroi, Entry tax, or CST. After the implementation of GST, organizations might get tax credit due to the changes in the tax framework. Hence, the companies shall adapt to GST and reconfigure their inventory valuation, asset capitalization, and expense recording rules. It shall help to assess their accounting system for proper utilization and accounting.

GST Registration and Filing

Transition to GST will require migrating existing service tax, VAT, and central excise registrations to GST registration. The process for migration of existing tax registrations to GST has already begun. Hence, accounting professionals and personnel update themselves with GST regulations to implement the GST compliance for the company.

Further, GST payments and return filings are expected to be state wise.  Hence, organizations must devise an appropriate system in place, make necessary changes to the accounting system and plan for well-timed state-wise reconciliations of periodic GST filings in various states, with the amount recorded in the books of accounts. Companies, which comprise excise as a part of sales for their internal reporting or MIS, may have to redesign the MIS post-GST transition and reflect on the consequent impact.

Maintaining Account

A key area that requires major changes in the implementation of GST applies to the Chart of Accounts (COA). COA focuses on maintaining the book of accounts. Currently, there are quite a few indirect taxes and many tax-related general ledger (GL) codes in the chart of Accounts utilized for financial reporting. The new COA shall depend on the category of business, rules related to availing of credit, place of supply, and others. Nevertheless, under GST, the necessary tax codes would reduce and make accounting simpler, going forward.

Transitioning to GST 

Organizations, both big and small, must plan well in advance for GST implementation. GST implementation by the Government will have a major impact on various areas like accounting process, financial statement preparation, GST compliance filing, and more. Further, GST implementation could also result in potential write off of tax credits accumulated in particular states and not probable to be set off.  Hence, it is best to engage an expert in understanding the impact on GST implementation on the business and being taking steps to make the change process easier.

Click here to file GST.