Accounting Treatment of Inward Supplies

Dear Friends, please find below the accouting treatment for inward supplies under GST

6(a) Accounting Treatment of Inward Supplies under GST “Inward supply” in relation to a person, shall mean receipt of goods or services or both whether by purchase, acquisition or any other means with or without consideration- Section 2(67) of the CGST Act. Thus, inward supply may be of goods (inputs or capital goods) or of input services. The supplier may be a registered person or an unregistered person. Again, registered person may be a person supplying goods under composition scheme under section 10 of the CGST Act. If supply is received of notified goods or services, reverse charge provisions under section 9(3) of CGST Act or section 5(3) of the IGST Act will become applicable. Similarly, if supply is received by a registered person from an unregistered person, reverse charge provisions under section 9(4) of the CGST Act or section 5(4) of the IGST Act will become applicable. Inward supplies may be of goods and/or services attracting exempt, nil rated, non-taxable or other prescribed rates. The supply may also be of goods and/ or services on which input tax credit is not available. Further, the supply may be intra-state, inter-state, by way of import, from SEZ etc. In the following paras, an effort has been made to show accounting entries covering each of these transactions. A. Types of Inward Supply Inward supply may include:

1. Supply from registered person

2. Supply under reverse charge a. of notified goods/services b. from unregistered persons

3. Supply from a person registered under Composition scheme

4. Exempt/Nil rated/Non-Taxable supplies

5. Supply by way of Import/ from SEZ

6. Supply from Branch/another business vertical Further,

from taxability point of view, supply may be: 1. Taxable supply; 2. Non-taxable supply; 3. Exempt supply; 4. Nil rated supply Taxable Supply: “Taxable supply” means a supply of goods or services or both which is leviable to tax under this Act -Section 2(108) of the CGST Act, 2017.

Non-Taxable Supply: “Non-Taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act -Section 2(78) of the CGST Act, 2017. Exempt Supply: “Exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply- Section 2(47) of the CGST Act, 2017.

Nil-rated supply: “Nil-rated supply” is not defined in the Act. However, supply of any goods or services or both which attracts nil rate of tax is a nil-rated supply. Nature of Supply The nature of supply may be intra-state or inter-state. Import and supply from a SEZ developer or unit shall be treated as inter-state supply. The principle for determining the nature of supply has been given in section 7 (for inter-state supply) and section 8 (for intra-state supply) and section 9 (Supplies in Territorial Waters) of IGST Act, 2017.

Assumptions for Inward supply:  Purchase of 7 units @ 10/- each  Incidental expenses like transportation charged by supplier- Rs. 30/-  Total value of inward supply: Rs. 100/-  CGST @9%  SGST @ 9%  IGST @ 18% Note: For ease of understanding, we have used Purchase/Expense instead of ‘Inward Supply’. Further, it has been presumed that the recipient shall take credit of eligible input tax on provisional basis in terms of provisions of section 41 of the CGST Act. Alternatively, input tax credit can also be routed through a control account, say, interim account and on eligibility, shall be transferred to respective input tax credit account.

6(a)-A1: Inward supply from registered person (B2B Supply) Illustration for Inward supply:  Purchase of 7 units @ 10/- each  Incidental expenses like transportation charged by supplier- Rs. 30/-  Total value of inward supply: Rs. 100/-  CGST @9%  SGST @ 9%  IGST @ 18%  Cess @ 5% Note: For ease of understanding, we have used Purchase/Expense instead of ‘Inward Supply’. Further, it has been presumed that the recipient shall take credit of eligible input tax on provisional basis in terms of provisions of section 41 of the CGST Act. Alternatively, input tax credit can also be routed through a control account, say, interim account and on eligibility, shall be transferred to respective input tax credit account.

Particulars Debit (Rs.) Credit (Rs.) Remarks a. For Intra State Supply from a registered person

Purchase/Expense A/c Dr. 100 Statutory reference: Sec 9 of the CGST SGST – Input A/c Dr. 9 Act read with Sec 16(1) of CGST Act CGST – Input A/c Dr. 9 GSTR Return Reference Table: GSTR Cess – Input A/c Dr. 5 2>>Table 3 To Vendor/Bank A/c 123 (Being intra state purchase made) b. For Inter State Supply from a registered person Purchase/Expense A/c Dr. 100 Statutory reference: Sec 7 of the IGST IGST- Input A/c Dr. 18 Act read with Sec 16(1) of CGST Act Cess – Input A/c Dr. 5 GSTR Return Reference Table: GSTR To Vendor/Bank A/c 123 2>>Table 3 (Being inter-state purchase made) Notes: (i) In case of goods, purchase account will be debited and in case of services, the expense account will be debited. (ii) In case of credit purchase, the Vendor will be credited and in case of cash purchase, bank or cash will be credited. (iii) Cess is charged in accordance with Section 8 of The Goods & Services Tax (Compensation to States) Act, 2017

6(a)-A2: Supply under reverse charge 11 “Reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act- Section 2(98) of the CGST Act. Under section 9(3) of the CGST Act, SGST Act and section 5(3) of the IGST Act, recipient of the goods and/or services is liable to pay tax on notified categories of supply of goods and/or services. The Government has issued N.No.4/2017-Central Tax (Rate) and N.No.4/2017-Integrated Tax (Rate) in respect of goods and N.No.13/2017-Central Tax (Rate) and N. No.10/2017-Integrated Tax (Rate) in respect of services, all dated 28th June, 2017. Under section 9(4) of the CGST Act, the central tax and under section 5(4) of the IGST Act, the integrated tax in respect of the supply of taxable goods and/or services by an unregistered supplier to a registered person shall be paid by such registered person on reverse charge basis. However, the Government vide N. No. 38/2017- Central Tax (Rate) dated 13th October, 2017 has exempted such supplies by an unregistered supplier to a registered person from reverse charge till 31st March, 2018. Earlier such exemption was limited up to an aggregate value of Rs.5000/- per day from all unregistered persons vide Notification No. 8/2017 Central Tax (Rate) dated 28th June, 2017. If taxable goods and/or services is received by a registered person from an unregistered supplier and such registered person is liable to pay tax under section 9(3) or section 9(4) of the CGST Act or under section 5(3) or 5(4) of the IGST Act, then he shall issue an invoice under section 31(3)(f) of the CGST Act and a payment voucher at the time of making payment to the supplier under section 31(3)(g) of the CGST Act read with Rule 46 and Rule 52 respectively. Under 2nd proviso to Rule 46 of the CGST Rules, 2017, a consolidated invoice may be issued at the end of a month for supplies covered under section 9(4), where aggregate value of such supplies exceeds Rs. 5000/- in a day from any or all the suppliers. Subject to such restrictions and conditions as prescribed in section 16 and 17 of the CGST Act and Rules 36 to 45 of the CGST Rules, Input Tax Credits (ITC) in respect of taxes paid on reverse charge basis shall be available to the recipient.

Accounting Entries: S.No. Particulars Debit Credit Remarks A. (I) For Intra-state Inward supply u/s 9(3)/9(4) GSTR Return Reference Table: GSTR 2>>Table 4A and 4B Purchase/Expense A/c Dr. 100 SGST – Interim Input A/c Dr. 9 CGST – Interim Input A/c Dr. 9 Compensation Cess – Interim Input A/c Dr. 5 To Output SGST (RCM) A/c 9 To Output CGST (RCM) A/c 9 12 To Output Compensation Cess (RCM) A/c 5 To Vendor/Bank A/c 100 (Being intra state purchases made) (II) E-cash Ledger CGST A/c Dr. 9 E-cash Ledger SGST A/c Dr. 9 E-cash Ledger Cess A/c Dr. 5 To Bank A/c 23 (Being tax deposited in the Electronic Cash Ledger) (III) Output SGST (RCM) A/c Dr. 9 Output CGST (RCM) A/c Dr. 9 Output Compensation Cess (RCM) A/c Dr. 5 To E-cash Ledger CGST A/c 9 To E-cash Ledger SGST A/c 9 To E-cash Ledger Cess A/c 5 (Being payment of tax under RCM on intra-state supply made through Electronic Cash ledger) (IV) SGST – Input A/c Dr. 9 CGST – Input A/c Dr. 9 Compensation Cess – Input A/c Dr. 5 To SGST Interim InputA/c 9 To CGST Interim Input A/c 9 To Compensation Cess – Interim Input A/c 5 (Being Input tax transferred on payment of tax under RCM on intra-state supply) B. (I) For Inter-state Inward supply u/s 5(3)/5(4) Purchase/Expense A/c Dr. 100 GSTR Return Reference Table: GSTR 2>>Table 4A & 4B IGST- Interim Input A/c Dr. 18 Compensation Cess – Interim Input A/c Dr. 5 To Output IGST (RCM) A/c 18 To Output Compensation Cess (RCM) A/c 5 To Vendor/Bank A/c 100 (Being inter-state purchases made) (II) E-cash Ledger IGST A/c Dr. 18 E-cash Ledger Cess A/c Dr. 5 To Bank A/c 23 13 (Being tax deposited in the Electronic Cash Ledger) (III) Output IGST (RCM) A/c Dr. 18 Output Compensation Cess (RCM) A/c Dr. 5 To E-cash Ledger IGST A/c 18 To E-cash Ledger Cess A/c 5 (Being payment of tax under RCM on inter-state supply made through Electronic Cash ledger) (IV) IGST – Input A/c Dr. 18 Compensation Cess – Input A/c Dr. 5 To IGST Interim InputA/c 18 To Compensation Cess – Interim Input A/c 5 (Being Input tax transferred on payment of tax under RCM on inter-state supply) Note: Input Tax Credit under Reverse Charge shall be available in the month in which self-invoice is issued under section 31(3)(f). 6(a)-A3: Inward Supply from a person under composition scheme Under section 10(4) of the CGST Act, a person eligible to pay tax under composition scheme shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. Further, reverse charge under section 9(4) shall also not be applicable, as a person under composition scheme is a registered person under GST. Such a person shall, issue a bill of supply instead of a tax invoice, containing such particulars and in such manner as provided in section 31(3)(c) read with Rule 49 of CGST Rules, 2017. Proviso to section 31(3)(c) further provides that a bill of supply may not be issued if the value of the goods or services or both supplied is less than two hundred rupees subject to such conditions and in such manner as may be prescribed. However, GST levied on taxable inward supplies received by a person under composition scheme shall become a cost to him as he cannot avail input tax credit on that. As per section 10(2), a registered person shall be eligible to opt for composition scheme, only if: (a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II; (b) he is not engaged in making any supply of goods which are not leviable to tax; (c) he is not engaged in making any inter-State outward supplies of goods; (d) he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and (e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council: Accounting Entries: 14 Particulars Debit (Rs.) Credit (Rs.) Remarks For Inter State and Intra State Supply from a composite dealer Purchase/Expense A/c Dr. 118 GSTR Return Reference Table: GSTR To Vendor/Bank A/c 118 2>>Table 7(2) (Being inward supply made from a person under Composition Scheme) 6(a)-A4: Inward Supply [Exempt/Nil rated/Non-Taxable] A registered person supplying exempted goods or services or both shall issue a bill of supply, instead of a tax invoice, containing such particulars and in such manner as provided in section 31(3)(c) read with Rule 49 of CGST Rules, 2017. Proviso to section 31(3)(c) further provides that a bill of supply may not be issued if the value of the goods or services or both supplied is less than two hundred rupees subject to such conditions and in such manner as may be prescribed. Accounting Entries: Particulars Debit (Rs.) Credit (Rs.) Remarks For Inter State and Intra State Supply of Nil rated/Exempt/Non-taxable goods or services Purchase/Expense A/c Dr. 118 GSTR Return Reference Table: GSTR To Vendor/Bank A/c 118 2>>Table 7(3/4/5) (Being Intra-state/Inter-state Inward supply of Exempt/Nil rated/Non-Taxable goods or services undertaken) 6(a)-A5: Inward Supply by way of import/from SEZ Import of Goods: ‘Import of goods’ with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India and shall be treated as inter-state supply- Section 2(10) read with section 7(2) of the IGST Act, 2017. Import of goods being an inter-state supply as per section 7(2) [supra], will be subject to levy of IGST as provided in section 5(1) of the IGST Act. Additional duty of customs (CVD) or Special Additional Duty (SAD) hitherto levied on imported goods in pre-GST regime, shall no longer be levied except on few commodities such as pan masala, certain petroleum products. The levy, collection, valuation and point of taxation of IGST, however, shall not be as per GST law but as per the provisions of Customs Act as provided in the proviso to Section 5(1) of IGST Act as follows: “Integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at 15 the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.” Thus,  Levy and collection of IGST on import of goods into India: shall be in accordance with the provisions of section 3 of the Customs Tariff Act, 1975;  Valuation: shall be determined under the Customs Tariff Act, 1975 and  Point of Taxation: shall be at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962. In addition, a few products such as aerated waters, tobacco products, motor vehicles etc. would also attract levy of GST Compensation Cess, over and above IGST. Valuation and method of calculation in case of import of goods: For calculating IGST on any imported goods, the value of such imported goods shall be the aggregate of – i. the value determined under section 14(1) or the tariff value fixed under section 14(2) of the Customs Act, 1962; and ii. any duty of Customs chargeable on that article under section 12 of the Customs Act, 1962; and i. any sum chargeable on that article under any law for the time being in force as an addition to, or as duty of Customs. These would include education cess or higher education cess as well as antidumping and safeguard duties. but does not include IGST and GST Compensation Cess as referred to in section 3(7) and 3(9) of the Customs Tariff Act. The value of the imported article for the purpose of levying GST Compensation cess shall be the aggregate of the followings: i. Assessable value; ii. Basic Customs Duty (BCD) levied under the Act; iii. any sum chargeable on the goods under any law for the time being in force, as an addition to, and in the same manner as, a duty of customs. These would include education cess or higher education cess as well as anti-dumping and safeguard duties. Prior to 1st July, 2017, anti-dumping duties and safeguard duty were not included in the value for the levy of additional duty of customs (CVD) or Special Additional Duty (SAD). However, now for calculating IGST on imported goods, these duties will be included. The IGST paid shall not be added to the value for the purpose of calculating Compensation Cess. Import of Services: ‘‘Import of services” as defined in section 2(11) of the IGST Act means the supply of any service, where- (i) the supplier of service is located outside India; (ii) the recipient of service is located in India; and (iii) the place of supply of service is in India 16 Import of services being an inter-state supply as per section 7(2) [supra], will be subject to levy of IGST as provided in section 5(1) of the IGST Act. However, unlike import of goods, such levy will be on the value determined under section 15 of the CGST Act and collected in such manner as may be prescribed. The tax shall be payable under reverse charge by the recipient of services (other than a non-taxable online recipient) as provided in Sl. No. 1 of N. No. 10/2017-Integrated Tax (Rate) dated 28th June, 2017. Special Economic Zone: “Special Economic Zone” shall have the same meaning as assigned to it in clause (za) of section 2 of the Special Economic Zones Act, 2005- Section 2(19) of the IGST Act. Special Economic Zone developer: “Special Economic Zone Developer” shall have the same meaning as assigned to it in clause (g) of section 2 of the Special Economic Zones Act, 2005 and includes an Authority as defined in clause (d) and a Co-Developer as defined in clause (f) of section 2 of the said Act – Section 2(20) of the IGST Act. Supply of goods or services or both to or by a Special Economic Zone developer or a Special Economic Zone unit shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce- Section 7(5)(b) of IGST Act. Such supplies shall not be treated an intra-state supply as also mentioned in clause (i) of proviso to section 8(1) and proviso to section 8(2) of IGST Act. Illustration:  Import 9 units @ 10/- each  Total Custom Duty Rs. 10.  Total value of inward supply: Rs. 100/-  IGST @ 18% Accounting Entries S.No. Particulars Debit (Rs.) Credit (Rs.) Remarks a. Purchase A/c Dr. 90 GSTR Return Reference Table: Custom Duty A/c Dr. 10 For goods: GSTR 2>>Table 5A and 5B CGST – Interim Input A/c Dr. 18 For services: GSTR 2>>Table 4C To Vendor/Bank A/c 90 To Output IGST (RCM) A/c 18 To Custom Duty Payable A/c 10 (Being goods/services imported from outside India/SEZ) b. Custom Duty Payable A/c Dr. 10 To Bank A/c 10 (Being inter-state purchases made) c. E-cash Ledger IGST A/c Dr. 18 17 To Bank A/c 18 (Being tax payable deposited in the Electronic Cash Ledger) d. Output IGST (RCM) A/c Dr. 18 To E-cash Ledger IGST A/c 18 (Being payment of tax under RCM on import supply made through Electronic Cash ledger) e. IGST – Input A/c Dr. 18 To IGST Interim Input A/c 18 (Being Input tax transferred on payment of tax under RCM on inter-state supply) 6(a)-A6: Inward Supply from Branch/another business vertical As per Para 2 of Schedule-I to the CGST Act, 2017, Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business shall be treated as supply even if made without any consideration. This will include the cases of stock transfer between branches from other states as well as supply from another business vertical, being a distinct person, within the same state. Accounting Entries: Particulars Debit (Rs.) Credit (Rs.) a. For Intra State Supply from a business vertical Purchase/Expense A/c Dr. 100 SGST – Input A/c Dr. 9 CGST – Input A/c Dr. 9 Cess – Input A/c Dr. 5 To Business vertical A/c 123 (Being intra state transfer made from a business vertical of the company) b. For Inter State Supply from a business vertical Purchase/Expense A/c Dr. 100 IGST- Input A/c Dr. 18 Cess – Input A/c Dr. 5 To Business vertical A/c 123 18 (Being inter state transfer made from a business vertical of the company)

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