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GST (Goods and Services Tax)

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What is GST?

Definition

GST (Goods and Services Tax) is a comprehensive indirect tax levied on the supply of goods and services in India. It is a destination-based tax that replaced multiple indirect taxes like VAT, Service Tax, Central Excise, and others. GST follows the principle of "One Nation, One Tax" and is designed to eliminate the cascading effect of taxes.

GST is administered jointly by the Central and State governments through the GST Council. It operates on a dual model where both CGST (Central GST) and SGST (State GST) are levied on intra-state supplies, while IGST (Integrated GST) is levied on inter-state supplies.

Why GST Matters?

GST simplifies the tax structure, reduces tax burden through input tax credit, promotes ease of doing business, and creates a unified national market for goods and services.

GST Rate Structure

GST in India follows a multi-tier rate structure to ensure essential items remain affordable while luxury items are taxed higher.

0%
Essential items like fruits, vegetables, milk, cereals
5%
Items of mass consumption like sugar, tea, coffee
12%
Processed foods, computers, mobile phones
18%
Most goods and services including restaurants
28%
Luxury items like cars, cigarettes, aerated drinks

Advantages of GST

GST has revolutionized India's tax system by bringing transparency, efficiency, and uniformity. Here are the key advantages:

One Nation, One Tax

GST has unified the entire country under one tax regime, eliminating the complex web of multiple indirect taxes. This has created a single national market, making business operations smoother across states.

Elimination of Cascading Effect

The cascading effect (tax on tax) has been eliminated as GST provides seamless credit for taxes paid at each stage. This reduces the overall tax burden and makes goods and services more affordable.

Digital Tax Administration

GST operates on a completely digital platform with online registration, filing, and payment systems. This has increased transparency, reduced human interface, and made tax compliance more efficient.

Boost to GDP Growth

GST has contributed to GDP growth by formalizing the economy, improving tax compliance, and creating a more efficient supply chain. It has also attracted more businesses into the formal sector.

Uniform Tax Structure

GST provides a uniform tax structure across the country, eliminating rate variations between states. This has created a level playing field for businesses and reduced tax arbitrage opportunities.

Seamless Interstate Trade

With the removal of state barriers and check posts, goods movement has become faster and more efficient. This has reduced transportation time and costs, benefiting both businesses and consumers.

Items Exempt from GST

Certain essential goods and services are exempt from GST to keep them affordable for common people. Here are the major categories:

Fresh Fruits & Vegetables
Unprocessed fruits, vegetables, and natural produce
Agricultural Products
Seeds, fertilizers, and farming equipment
Educational Services
School fees, coaching, and educational materials
Healthcare Services
Medical treatment, medicines, and healthcare
Basic Food Items
Cereals, pulses, flour, and unprocessed food
Sale of Land & Building
Sale of residential and commercial properties
Printed Books & Newspapers
Books, journals, and periodicals
Charitable Services
NGO services and charitable activities

Types of GST in India

Understanding the different types of GST and when they apply is crucial for proper tax compliance.

Type of GST Full Form When Applicable Collected By
CGST Central Goods and Services Tax Intra-state transactions Central Government
SGST State Goods and Services Tax Intra-state transactions State Government
IGST Integrated Goods and Services Tax Inter-state transactions Central Government
UTGST Union Territory Goods and Services Tax Intra-UT transactions Union Territory

Key Point

For any transaction, the total GST rate remains the same. In intra-state transactions, it's split equally between CGST and SGST. In inter-state transactions, the entire amount goes as IGST.

Basic GST Journal Entry Format

Understanding GST Entries

GST journal entries involve recording Input GST (GST paid on purchases) and Output GST (GST collected on sales). GST is divided into CGST & SGST for intra-state transactions and IGST for inter-state transactions.

Intra-State GST (CGST + SGST)

Date Particulars Debit (₹) Credit (₹)
2024
Mar 15
Purchase A/c ..................... Dr.
 10,000 -
Input CGST A/c ................... Dr.
 900 -
Input SGST A/c ................... Dr.
 900 -
To Supplier A/c
(Being goods purchased with GST @ 18%)
 - 11,800
Mar 20
Customer A/c .................... Dr.
 17,700 -
To Sales A/c
 - 15,000
To Output CGST A/c
 - 1,350
To Output SGST A/c
(Being goods sold with GST @ 18%)
 - 1,350

Inter-State GST (IGST)

Date Particulars Debit (₹) Credit (₹)
2024
Apr 10
Purchase A/c ..................... Dr.
 20,000 -
Input IGST A/c ................... Dr.
 3,600 -
To Supplier A/c
(Being inter-state purchase with IGST @ 18%)
 - 23,600
Apr 15
Customer A/c .................... Dr.
 29,500 -
To Sales A/c
 - 25,000
To Output IGST A/c
(Being inter-state sale with IGST @ 18%)
 - 4,500

Key Points:

  • Intra-State (Within State): CGST + SGST (usually 9% + 9% = 18% total)
  • Inter-State (Between States): IGST (usually 18%)
  • Input GST: Debited when purchasing (can be claimed as credit)
  • Output GST: Credited when selling (to be paid to government)

GST Adjustment (Input vs Output)

Understand how Input GST is set-off against Output GST liability with a simple example:

GST Adjustment Example

Offsetting Input vs Output Tax

Scenario: ABC Traders (Delhi) had the following transactions in June 2024 (IGST @ 18%):
  1. Purchased goods worth ₹2,00,000 + IGST (18%)
  2. Sold goods worth ₹2,50,000 + IGST (18%)

Working of GST Adjustment:

Particulars Amount (₹)
Input IGST (on purchases) 36,000 (₹2,00,000 × 18%)
Output IGST (on sales) 45,000 (₹2,50,000 × 18%)
Adjustment
Input IGST (36,000) is set off against Output IGST (45,000) 		-36,000
Net IGST Payable 9,000
Explanation:

• The business paid IGST of ₹36,000 on purchases.
• It collected IGST of ₹45,000 on sales.
• Instead of paying full ₹45,000, the business uses its Input IGST (₹36,000) as credit.
• Only the balance of ₹9,000 is payable to the government.

This is the core of Input Tax Credit (ITC) mechanism in GST.

Practical GST Examples

Practice journal entries for business transactions with GST:

Example 1

Trading Business - Intra-State

Question: Mr. Sharma started a trading business in Mumbai. Record the following transactions for March 2024 (All transactions within Maharashtra - CGST 9% + SGST 9%):
  1. Started business with cash ₹5,00,000
  2. Purchased goods from local supplier ₹80,000 + GST
  3. Paid office rent ₹20,000 + GST
  4. Sold goods to customer ₹1,20,000 + GST
  5. Purchased furniture ₹30,000 + GST
  6. Paid electricity bill ₹5,000 + GST

Journal Entries:

Date Particulars Debit (₹) Credit (₹)
2024
Mar 1
Cash A/c ........................ Dr.
To Capital A/c
(Being business started with cash)
 5,00,000 5,00,000
Mar 5
Purchase A/c ..................... Dr.
 80,000 -
Input CGST A/c ................... Dr.
 7,200 -
Input SGST A/c ................... Dr.
 7,200 -
To Cash A/c
(Being goods purchased for cash with GST)
 - 94,400
Mar 8
Rent A/c ........................ Dr.
 20,000 -
Input CGST A/c ................... Dr.
 1,800 -
Input SGST A/c ................... Dr.
 1,800 -
To Cash A/c
(Being office rent paid with GST)
 - 23,600
Mar 15
Cash A/c ........................ Dr.
 1,41,600 -
To Sales A/c
 - 1,20,000
To Output CGST A/c
 - 10,800
To Output SGST A/c
(Being goods sold for cash with GST)
 - 10,800
Mar 20
Furniture A/c .................... Dr.
 30,000 -
Input CGST A/c ................... Dr.
 2,700 -
Input SGST A/c ................... Dr.
 2,700 -
To Cash A/c
(Being furniture purchased with GST)
 - 35,400
Mar 25
Electricity Expenses A/c ......... Dr.
 5,000 -
Input CGST A/c ................... Dr.
 450 -
Input SGST A/c ................... Dr.
 450 -
To Cash A/c
(Being electricity bill paid with GST)
 - 5,900
GST Summary:

• Total Input CGST = ₹11,950 | Total Input SGST = ₹11,950
• Total Output CGST = ₹10,800 | Total Output SGST = ₹10,800
• Net CGST Refund = ₹1,150 | Net SGST Refund = ₹1,150
• Total GST Refund Claimable = ₹2,300

Example 2

Inter-State Business

Question: Rajesh Enterprises in Delhi started operations in April 2024. Record the following transactions (IGST @ 18%):
  1. Started business with cash ₹10,00,000
  2. Purchased goods from Mumbai supplier ₹2,00,000 + IGST
  3. Paid transportation charges ₹15,000 + IGST
  4. Sold goods to Kolkata customer ₹3,00,000 + IGST
  5. Purchased computer from Chennai ₹50,000 + IGST
  6. Paid insurance premium ₹12,000 + IGST

Journal Entries:

Date Particulars Debit (₹) Credit (₹)
2024
Apr 1
Cash A/c ........................ Dr.
To Capital A/c
(Being business started with cash)
 10,00,000 10,00,000
Apr 5
Purchase A/c ..................... Dr.
 2,00,000 -
Input IGST A/c ................... Dr.
 36,000 -
To Cash A/c
(Being inter-state purchase from Mumbai)
 - 2,36,000
Apr 8
Transportation Charges A/c ....... Dr.
 15,000 -
Input IGST A/c ................... Dr.
 2,700 -
To Cash A/c
(Being transportation charges paid with IGST)
 - 17,700
Apr 15
Cash A/c ........................ Dr.
 3,54,000 -
To Sales A/c
 - 3,00,000
To Output IGST A/c
(Being inter-state sale to Kolkata)
 - 54,000
Apr 20
Computer A/c ..................... Dr.
 50,000 -
Input IGST A/c ................... Dr.
 9,000 -
To Cash A/c
(Being computer purchased from Chennai)
 - 59,000
Apr 25
Insurance Premium A/c ............ Dr.
 12,000 -
Input IGST A/c ................... Dr.
 2,160 -
To Cash A/c
(Being insurance premium paid with IGST)
 - 14,160
IGST Summary:

• Total Input IGST = ₹49,860
• Total Output IGST = ₹54,000
• Net IGST Payable = ₹54,000 - ₹49,860 = ₹4,140

Example 3

Service Business - Mixed GST

Question: Royal Restaurant in Bangalore started in May 2024. Record the following (Local: CGST 2.5% + SGST 2.5%, Inter-state: IGST 5%):
  1. Started business with cash ₹8,00,000
  2. Purchased kitchen equipment locally ₹1,00,000 + GST @ 18%
  3. Purchased food items locally ₹50,000 + GST @ 5%
  4. Restaurant service income ₹80,000 + GST @ 5%
  5. Paid local rent ₹30,000 + GST @ 18%
  6. Purchased vegetables from farmer (no GST) ₹10,000

Journal Entries:

Date Particulars Debit (₹) Credit (₹)
2024
May 1
Cash A/c ........................ Dr.
To Capital A/c
(Being business started with cash)
 8,00,000 8,00,000
May 5
Kitchen Equipment A/c ............ Dr.
 1,00,000 -
Input CGST A/c ................... Dr.
 9,000 -
Input SGST A/c ................... Dr.
 9,000 -
To Cash A/c
(Being kitchen equipment purchased @ 18% GST)
 - 1,18,000
May 10
Purchase A/c (Food Items) ........ Dr.
 50,000 -
Input CGST A/c ................... Dr.
 1,250 -
Input SGST A/c ................... Dr.
 1,250 -
To Cash A/c
(Being food items purchased @ 5% GST)
 - 52,500
May 15
Cash A/c ........................ Dr.
 84,000 -
To Restaurant Income A/c
 - 80,000
To Output CGST A/c
 - 2,000
To Output SGST A/c
(Being restaurant service income @ 5% GST)
 - 2,000
May 20
Rent A/c ........................ Dr.
 30,000 -
Input CGST A/c ................... Dr.
 2,700 -
Input SGST A/c ................... Dr.
 2,700 -
To Cash A/c
(Being rent paid @ 18% GST)
 - 35,400
May 25
Purchase A/c (Vegetables) ........ Dr.
To Cash A/c
(Being vegetables purchased from farmer - No GST)
 10,000 10,000
GST Summary:

• Total Input CGST = ₹12,950 | Total Input SGST = ₹12,950
• Total Output CGST = ₹2,000 | Total Output SGST = ₹2,000
• Net CGST Refund = ₹10,950 | Net SGST Refund = ₹10,950
• Total GST Refund Claimable = ₹21,900

Example 4

Mixed Transactions

Question: ABC Traders in Chennai deals in both local and inter-state transactions. Record the following for June 2024:
  1. Started business with cash ₹6,00,000
  2. Purchased goods locally ₹60,000 + GST @ 18%
  3. Sold goods to local customer ₹40,000 + GST @ 18%
  4. Purchased goods from Delhi ₹80,000 + IGST @ 18%
  5. Sold goods to Mumbai customer ₹1,00,000 + IGST @ 18%
  6. Paid telephone bill ₹3,000 + GST @ 18%

Journal Entries:

Date Particulars Debit (₹) Credit (₹)
2024
Jun 1
Cash A/c ........................ Dr.
To Capital A/c
(Being business started with cash)
 6,00,000 6,00,000
Jun 5
Purchase A/c ..................... Dr.
 60,000 -
Input CGST A/c ................... Dr.
 5,400 -
Input SGST A/c ................... Dr.
 5,400 -
To Cash A/c
(Being local purchase with GST)
 - 70,800
Jun 10
Cash A/c ........................ Dr.
 47,200 -
To Sales A/c
 - 40,000
To Output CGST A/c
 - 3,600
To Output SGST A/c
(Being local sale with GST)
 - 3,600
Jun 15
Purchase A/c ..................... Dr.
 80,000 -
Input IGST A/c ................... Dr.
 14,400 -
To Cash A/c
(Being inter-state purchase from Delhi)
 - 94,400
Jun 20
Cash A/c ........................ Dr.
 1,18,000 -
To Sales A/c
 - 1,00,000
To Output IGST A/c
(Being inter-state sale to Mumbai)
 - 18,000
Jun 25
Telephone Expenses A/c ........... Dr.
 3,000 -
Input CGST A/c ................... Dr.
 270 -
Input SGST A/c ................... Dr.
 270 -
To Cash A/c
(Being telephone bill paid with GST)
 - 3,540
GST Summary:

• Input CGST = ₹5,670 | Input SGST = ₹5,670 | Input IGST = ₹14,400
• Output CGST = ₹3,600 | Output SGST = ₹3,600 | Output IGST = ₹18,000
• Net CGST Refund = ₹2,070 | Net SGST Refund = ₹2,070
• Net IGST Payable = ₹18,000 - ₹14,400 = ₹3,600
• After adjustment: Net GST Payable = ₹3,600 - ₹4,140 = NIL (Refund ₹540)

Practice Questions – GST Journal Entries

Try these practice sets yourself. Record journal entries for the following transactions as per GST rules (DK Goel syllabus).

Practice Question 1

Trading Business – Intra-State (CGST 9% + SGST 9%)

  1. Commenced business with cash ₹8,00,000
  2. Purchased goods from local supplier ₹1,20,000 + GST
  3. Sold goods for cash ₹2,00,000 + GST
  4. Paid shop rent ₹25,000 + GST
  5. Bought furniture for office use ₹50,000 + GST
  6. Paid electricity charges ₹8,000 + GST
  7. Sold goods to local customer ₹1,50,000 + GST
  8. Paid salaries to staff ₹60,000 (No GST)
  9. Purchased stationery ₹6,000 + GST
  10. Owner withdrew cash for personal use ₹20,000

Practice Question 2

Wholesale Business – Inter-State (IGST 18%)

  1. Started business with capital ₹12,00,000
  2. Purchased goods from Mumbai supplier ₹3,00,000 + IGST
  3. Paid transport charges ₹20,000 + IGST
  4. Sold goods to Kolkata dealer ₹4,00,000 + IGST
  5. Purchased computer ₹70,000 + IGST
  6. Paid advertisement expenses ₹25,000 + IGST
  7. Sold goods to Chennai dealer ₹2,50,000 + IGST
  8. Paid telephone bill ₹10,000 + IGST
  9. Purchased printer ₹15,000 + IGST
  10. Paid insurance premium ₹18,000 + IGST

Practice Question 3

Service Business – Intra-State (CGST 9% + SGST 9%)

  1. Commenced service business with cash ₹5,00,000
  2. Paid office rent ₹30,000 + GST
  3. Purchased office furniture ₹40,000 + GST
  4. Received advance from client ₹80,000 + GST
  5. Provided services to client ₹1,50,000 + GST
  6. Paid professional fees ₹12,000 + GST
  7. Bought office stationery ₹7,000 + GST
  8. Paid electricity bill ₹6,000 + GST
  9. Rendered services on credit ₹1,00,000 + GST
  10. Owner withdrew goods for personal use (cost ₹10,000, market value ₹15,000)

Practice Question 4

Export & Domestic Mix – Zero-rated & Intra-State (Exports @0%, Local CGST 9% + SGST 9%)

  1. Started export firm with cash ₹7,00,000
  2. Purchased raw materials locally ₹2,00,000 + GST
  3. Exported finished goods worth ₹3,50,000 (Zero-rated)
  4. Purchased packing material ₹15,000 + GST
  5. Paid freight for export consignment ₹25,000 (No GST)
  6. Sold goods in local market ₹1,00,000 + GST
  7. Bought office furniture ₹30,000 + GST
  8. Paid advertisement expenses ₹20,000 + GST
  9. Sold goods to another exporter ₹80,000 (Zero-rated)
  10. Paid staff salaries ₹50,000 (No GST)

🧩 MCQ Practice

1. Which of the following is a book of original entry?

2. Cash Book is also treated as?

3. Purchases book records only:

4. Sales return book is also called:

5. Contra entries are recorded in:

6. Petty Cash Book is maintained by which method?

7. Which book records credit sales of goods?

8. Which voucher is prepared for credit purchase of goods?

9. Which of the following is NOT a subsidiary book?

10. In Cash Book, discount allowed is shown on:

Practice Questions on Cash Book & Books of Original Entry

Practical Question 1

Record the following in a Cash Book:

  • 1 Jan: Started business with ₹80,000 cash.
  • 2 Jan: Deposited ₹20,000 into bank.
  • 4 Jan: Purchased goods on credit from Ramesh for ₹10,000.
  • 6 Jan: Paid salary ₹5,000.
  • 7 Jan: Received cash from Suresh ₹15,000.
  • 10 Jan: Purchased furniture for ₹8,000 by cheque.

Practical Question 2

Enter the following in suitable books of original entry:

  • 3 Feb: Purchased goods for cash ₹25,000.
  • 5 Feb: Sold goods on credit to Mohan ₹30,000.
  • 7 Feb: Returned goods worth ₹2,000 to supplier.
  • 9 Feb: Received cheque from Mohan ₹20,000.
  • 12 Feb: Paid rent ₹5,000.
  • 14 Feb: Purchased stationery ₹1,200 cash.

Practical Question 3

Record the following in Cash Book:

  • 1 Mar: Cash balance ₹50,000.
  • 2 Mar: Deposited into bank ₹10,000.
  • 3 Mar: Cash sales ₹12,000.
  • 5 Mar: Paid wages ₹3,000.
  • 8 Mar: Paid by cheque for advertisement ₹4,000.
  • 10 Mar: Received cash from Ajay ₹7,000.

Practical Question 4

Enter the following in proper books:

  • 2 Apr: Sold goods on credit to Ramesh ₹18,000.
  • 3 Apr: Purchased goods from Sohan on credit ₹12,000.
  • 5 Apr: Cash sales ₹5,000.
  • 8 Apr: Returned goods by Ramesh ₹2,000.
  • 9 Apr: Paid Sohan by cheque ₹10,000.
  • 11 Apr: Paid electricity bill ₹3,000 cash.

Practical Question 5

Record in Cash Book:

  • 1 May: Cash in hand ₹60,000.
  • 2 May: Paid rent ₹6,000.
  • 4 May: Cash sales ₹25,000.
  • 6 May: Purchased goods for cash ₹10,000.
  • 8 May: Deposited into bank ₹15,000.
  • 10 May: Paid insurance premium ₹2,000.

Practical Question 6

Enter the following in proper books of original entry:

  • 3 Jun: Purchased goods on credit from Anil ₹22,000.
  • 4 Jun: Sold goods on credit to Sunil ₹28,000.
  • 6 Jun: Cash sales ₹12,000.
  • 7 Jun: Returned goods to Anil ₹2,000.
  • 9 Jun: Received cheque from Sunil ₹20,000.
  • 11 Jun: Paid salaries ₹7,000.