Composition Scheme and scheme notified by through notification no. 2/2019 CT(Rate) dated 7-3-2019 are scheme framed by government for small tax payers having turnover of INR 1.5 Crores in the preceding financial year. The accounting entries for this kind of scheme will be different as certain restriction are imposed in the scheme, the dealer under composition scheme: –
- Is not eligible to Collect Tax from customers
- Is not eligible to Tax Input Tax Credit
- Is liable to pay tax @ of 1%, 5% or 6% as the case may be
- Is liable to tax on Reverse charge mechanism at applicable rates
- Is liable to reverse/pay input credit held on stock or capital goods
The details of Scheme are specified in Separate article Published by us with name “Details of Composition Scheme and Scheme notified for Small Taxpayers Under GST”.
We have specified the accounting treatment to be given in the books of accounts through this document. In case of any queries you may email us on info@fibota.com
General Accounting entries for dealer under Composition Scheme.
The dealer is registered under composition scheme and he is liable to pay the tax on 18th of the month following the quarter. Also, the dealer is not eligible to collect tax from the customers.
Calculation of liability at the end of quarter as the taxpayer under composition scheme or scheme notified under notification no 2/2019 CT(Rate) dated 07-03-2019 is liable to pay tax by 18th of the next month from the end of relevant quarter.
- AccountingEntry for Sales (Accounting Entries for Composition Dealers or scheme notified through notification no 2/2019 CT(Rate) dated 07-03-2019)
Sr. No. | Particulars | Voucher Type | Debit | Credit |
1. | Debtors or Cash A/c | Sales | XXXX | |
To Sale A/c* | XXXX | |||
(Being sales made to the party) |
Note: – *It is advisable to do the grouping in the Profit and loss credit side for Taxable Goods, Taxable Services, Exempt Goods, Exempt Service and Export of Service and sale credit shall be categorized according to the nature of transaction. It is important to do for the purpose of computation of tax liability at the end of quarter.
- AccountingEntry for booking the GST Liability(Accounting Entries for Composition Dealers or scheme notified through notification no 2/2019 CT(Rate) dated 07-03-2019)
Sr. No. | Particulars | Voucher Type | Debit | Credit |
1. | CGST Expense A/c | Journal | XXXX | |
SGST Expense A/c | XXXX | |||
To CGST Payable A/c | XXXX | |||
To SGST Payable A/c | XXXX | |||
(Being GST Liability booked for Quarter ______) |
Note: – Once the GST liability is computed for the quarter then this entry is to be passed. The CGST Expense A/c and SGST Expense A/c shall be grouped under Direct Expenses in Profit and loss account and CGST Payable A/C and SGST Payable account shall be grouped under Duties and Tax in Current Liabilities under Balance sheet. Since the taxpayer under this kind of scheme are not eligible to collect tax from customers, the tax payable or paid on turnover shall be recognized as expenses.
- Accounting Entry for Payment of the GST Liability(Accounting Entries for Composition Dealers or scheme notified through notification no 2/2019 CT(Rate) dated 07-03-2019)
Sr. No. | Particulars | Voucher Type | Debit | Credit |
1. | CGST Payable A/c | Bank Payment | XXXX | |
SGST Payable A/c | XXXX | |||
To Bank A/c | XXXX | |||
(Being GST payment done for Quarter____________) |
Note: – Once the CMP-08 is filled and tax payment is made then this entry is to be passed. At the end of the reporting period that is on 31st March the liability for the last quarter should be reflected in the payable account.
- Accounting Entry for reversal of GST liability in case of Return or rejection of Goods or in case of Debit/Credit note(Accounting Entries for Composition Dealers or scheme notified through notification no 2/2019 CT(Rate) dated 07-03-2019)
Sr. No. | Particulars | Voucher Type | Debit | Credit |
Entry for Sales Reversal | Sales Return | |||
1. | Sales A/c | XXXX | ||
To Debtors A/c | XXXX | |||
(Being sales reversed for Bill No. ______) | ||||
Entry for Reversal Liability | Journal | |||
2. | CGST Payable A/c | XXXX | ||
SGST Payable A/c | XXXX | |||
To CGST Expense A/c | XXXX | |||
To SGST Expense A/c | XXXX | |||
(Being GST Liability reversed for Bill No.______) |
Note: – The liability shall be reversed within the Purview of GST Law. There are certain transaction wherein the liability of GST cannot be reversed even if sale income is reversed. Therefore, every reversal of income needs to be analyze within the purview of GST Law.
- Accounting Entry for Booking of GST liability in case of Reverse Charge Mechanism. (Accounting Entries for Composition Dealers or scheme notified through notification no 2/2019 CT(Rate) dated 07-03-2019)
Sr. No. | Particulars | Voucher Type | Debit | Credit |
Entry for Booking the Expenses liable for RCM under GST | Purchase/Journal or Cash Payment | |||
1. | Purchase/Expense A/c | XXXX | ||
To Creditor/Cash A/c | XXXX | |||
(Being expenses booked for _______) | ||||
Entry for Reversal Liability | Journal | |||
2. | CGST Expense on RCM A/c | XXXX | ||
SGST Expense on RCM A/c | XXXX | |||
To CGST Payable on RCM A/c | XXXX | |||
To SGST Payable on RCM A/c | XXXX | |||
(Being GST Liability Booked under RCM.______) |
Note: – It shall be noted that the taxpayer may book the liability in normal “CGST and SGST payable” account. However, for the purpose of keeping proper track it is advisable to maintain separate account for RCM
- Accounting Entry for Booking Purchase in case of Composition Dealer. (Accounting Entries for Composition Dealers or scheme notified through notification no 2/2019 CT(Rate) dated 07-03-2019)
This entry can be understood with the help of example. The Composition dealer has purchased goods of Rs 1,00,000 and on which 18% GST is Charged i.e. Rs 18,000 is charged. The Composition dealer will book the purchase expense inclusive of GST as he is not liable to get Input Tax credit of GST
Sr. No. | Particulars | Voucher Type | Debit | Credit |
1. | Purchase/Expense A/c | Purchase | 1,18,000 | |
To Creditor/Cash A/c | 1,18,000 | |||
(Being expenses booked for _______) |
1. Accounting Entry for reversal of Input Tax Credit in case of dealer who are migrating from normal levy under GST to Composition scheme or scheme notified for Small Tax payer. (Accounting Entries for Composition Dealers or scheme notified through notification no 2/2019 CT(Rate) dated 07-03-2019)
Sr. No. | Particulars | Voucher Type | Debit | Credit |
Entry for reversal of Input Tax credit on Stock | Journal | |||
1. | Purchase (Invoice wise) A/c | XXXX | ||
To Input Tax Receivable or CGST or SGST Receivable A/c | XXXX | |||
(Being Input Tax Credit Reverse during the transition of Scheme) | ||||
Entry for Reversal of Input Tax Credit on Capital Goods | Journal | |||
Fixed Asset (Respective Asset) A/c | XXXX | |||
To Input Tax Receivable or CGST or SGST Receivable A/c | XXXX | |||
(Being Input Tax credit Capitalisedduring the transition to Composition Scheme) |
Note: –
1. For Input held in Stock : The taxpayer has to reverse the input tax credit on stock. Therefore, if invoice wise details is available then the purchase entry for such stock shall be booked again with the revised value including Tax component. For example, there are 5 items in stock amounting to Rs 5 Lakhs (each item of Rs 1 Lac) and input tax credit on such items in tax receivable account is Rs 50,000 (each item of Rs 10,000) then those purchase entries shall be booked by Rs 1,10,000 instead of Rs 1,00,000 and accordingly the valuation of closing stock will automatically change in the books of accounts.
2. For input held in Capital Goods : The component of Input Credit shall be capitalized in each Fixed Asset item and revised depreciation shall be claimed.
3.It is to be noted that one the taxpayer opts for composition scheme or scheme for small tax payers then there should not be any balance in books of accounts pertaining to Input Tax Credit.
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Accounting Entry for availing Input Tax Credit in case of dealer who are migrating from Composition Scheme or scheme notified for Small Tax payer to Normal Levy under GST. (Accounting Entries for Composition Dealers or scheme notified through notification no 2/2019 CT(Rate) dated 07-03-2019)
Sr. No. | Particulars | Voucher Type | Debit | Credit |
Entry for availing of Input Tax credit on Stock | Journal | |||
1. | CGST Receivable A/c | XXXX | ||
SGST Receivable A/c | XXXX | |||
To Purchase (Invoice wise) A/c | XXXX | |||
(Being entry passed for availing the Input Tax Credit on stock during transition to normal levy of GST) | ||||
Entry for availing of Input Tax Credit on Capital Goods | Journal | |||
CGST Receivable A/c | XXXX | |||
SGST Receivable A/c | XXXX | |||
To Fixed Asset (Respective Asset) A/c | XXXX | |||
(Being Input Tax credit availed on Capital Goods during transition to normal levy of GST) |
1.For Input held in Stock: The taxpayer has to avail the input tax credit on stock. Therefore, purchase entry for such stock shall be booked again with the revised value excluding the Tax component. For example, there are 5 items in stock amounting to Rs 5.5 Lakhs (each item of Rs 1.1 Lac) and input tax credit on such items included in Purchase account is Rs 50,000 (each item of Rs 10,000) then those purchase entries shall be booked by Rs 1,00,000 instead of Rs 1,10,000 and accordingly the valuation of closing stock will automatically change in the books of accounts.The component of Input Credit shall be transferred to CGST and SGST Receivable account in Duties and Taxes under Current Assets in Balance
2.For input held in Capital Goods: The component of Input Credit shall be transferred to CGST and SGST Receivable account in Duties and Taxes under Current Assets in Balance and revised depreciation shall be claimed.