Best Practices for Recording and Utilizing State Codes in GST Transactions

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Published Date:  03-12-2023   Author:   sumith-roul
captainbiz best practices for recording and utilizing state codes in gst transactions

Any business must make use of the best practices for recording and utilizing state codes in GST transactions. Let us read to find out about the best practices.

Introduction

It goes without saying that GST accounting is the mainstay of any business. What would a business or organization do without proper bookkeeping? It is a known fact that businesses spend millions of dollars to ensure that their accounts are secure, proper, and up-to-date.

Besides, they hire the best accountants so that accurate books can be maintained. Having a proper bookkeeping or ledger is vital. It shows that the business is running, and in operation, and can provide clarity to the investors and stakeholders.

With the help of a ledger or bookkeeping, you can give a clear picture of every aspect of your business. It could be profits, revenues, expenditures, and others. The GST state code recording is entangled with all the transactions for a business.

It is vital that GST accounting requires detailed knowledge. On that note, we will be reading about some of the best practices for recording and utilizing state codes in GST transactions.

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What are the procedures to be followed while maintaining accounts and records as per GST?

As a taxpayer, you need to check your GST and make the payment to the GST department. Of course, the GST department will verify the tax paid by the taxpayer. A taxpayer is required to file the exact return and make the appropriate tax.

According to the accounts and records (Sections 35 and 36) of the CGST Act, the taxpayer has to maintain a record of the accounts and records.

How to manage GST accounting?

Section-35 (1) – Maintenance of books of account

The registered person has to maintain the account based on the place of registration according to the GST registration certificate.

  • The production of goods.
  • Inward/outward supply of goods & services.
  • Stock details of goods.
  • Input tax credit availed.
  • Output tax paid or payable.
  • In case there are multiple places of business, books relating to each place have to be maintained.

Rule 56(2) and (4)

The following are the details that have to be maintained by suppliers.

  • Details of stock.
  • Details of tax.

Rule 56(11)

The details that are to be maintained by agents:

  • Record of authorization given by every principal to receive or supply goods or services.
  • Description, quantity, and value of goods or services received
  • Description, quantity, and value of goods or services supplied.
  • Details of accounts furnished to every principal.
  • Taxes are paid on behalf of its principal.

Rule 56(12)

The details to be maintained by the manufacturer are as follows: 

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  • Quantitative details of raw material or services used for manufacture.
  • Quantitative details of goods manufactured.
  • Waste and by-products.

Rule 56(13)

The details to be maintained by service providers include the following:

  • The details of goods utilized in the provision of service.
  • The details of input services.

Another important point to note here is that whether the goods have been registered under GST or not, the owner has to maintain detailed records of the consigner, consignee, and other relevant details of goods.

Below are some of the details that should be maintained by the transporter:

  • Owner/operator of godown.
  • Period for which the goods will be present in the warehouse.
  • Dispatch, movement, and disposal of the goods.
  • The owner or operator shall maintain goods that the proper officer can identify and verify them.

Rule 56(17)

The custodian and forwarding agent should maintain the details of the goods in custody. When required, they have to produce the details to the proper officer.

Section 35 (3)

The specific authority or the commissioner can notify the taxable individuals to maintain any additional account or document as required.

Section 35 (4)

If the specific authority or the commissioner thinks that the individual can’t maintain books according to the provision of the section, the reason can be recorded in writing. However, the individual may be permitted to maintain such accounts as prescribed.

  • Follow standards and schedules

You can find different standards prescribed to maintain books of accounts. They include Accounting standards, Standards of Auditing, and so on. Some schedules have also been mentioned according to the company’s act for the maintenance of accounts.

These can be done by the accountant, if you have hired one for your business. The businessman must be aware of the rules and regulations.

  • Update regularly

As a responsible businessman, you have to make sure that your transactions are maintained properly. You might want to make sure that your transactions are properly recorded as and when they take place.

Besides, you have to file the return and pay tax monthly or quarterly, for every transaction.

  • Self-assessment and audit

As you may know by now, GST requires self-assessment and audit. You have to self-assess the tax and know your tax liability to the government. You may want to do it regularly so that no mistakes happen in the future.

Auditors must bear certain other provisions in mind, which are summarized below:- 

Sec Section Heading Rules Remarks
7 & 8  Supply, Composite, and mixed supply Schedules I, II, and III
12 Time of Supply of Goods Advance payment has been delinked from time of supply in case of supply of goods.
13 Time of Supply of Service Notification no.06/2019 – CT(R) in respect of time of supply of services in respect of any TDR/FSI received by a promoter. 
14 Time in case of change in rate of tax.
15 Value of Taxable Supply 27 to 35 Determination of Value of Supply.
16,17,1 8, 19 & 20 Input Tax Credit 36 to 45 Rules related to ITC and ISD.
31 Tax Invoice 46 to 55A Tax Invoice, Credit, and Debit Notes.
34 Credit & Debit Notes 46 to 55A Tax Invoice, Credit, and Debit Notes.
35 Accounts and other records 56 to 58 Accounts and Records.

     

Who must maintain accounts under GST?

The following individuals should maintain accounts under GST:

The owner

  • An owner. 
  • The owner of a godown used for storage of goods.
  • A transporter.

A registered person who has an annual turnover that exceeds the prescribed limit (2 crore) should have their accounts audited by an accountant.

What records must be maintained under GST?

Every registered person must maintain records of:

  • The manufacture of goods.
  • The inward and outward supply of goods or services, and stock of goods.
  • The input tax credit has been availed.
  • The output tax is payable and has been paid.
  • The particulars that have been recommended.

What are the accounts that must be maintained under GST?

A trader has to maintain the following a/cs:

  • Input CGST a/c.
  • Output CGST a/c.
  • Input SGST a/c.
  • Output SGST a/c.
  • Input IGST a/c.
  • Output IGST a/c.
  • Electronic Cash Ledger.

Accounting entries under GST

GST does have some initial challenges that most businessmen or tradesmen may have to face. However, it brings about immense clarity in most aspects of your business. When you have several accounts to maintain under GST, then having accounting entries enables you to keep track of your accounts easily.

You can set your input tax on service with the output tax on the sale.

Also Read: Accounting Entries – Purchase Entries With GST In The Accounting Journal

Electronic Cash and Credit Ledger

A registered taxpayer has 3 ledgers under GST. These are automatically generated at the time of registration and are maintained electronically.

Ledgers What is it?
Electronic cash ledger:  The ledger is an electronic wallet.  You can deposit money into the cash ledger. The money can be used to make the payment.
Electronic credit ledger: The electronic credit ledger can be used to showcase your input tax credit on purchases. This is concerning IGST, CGST & SGST. You can now utilize the balance shown in this account.
E-liability ledger: The e-liability ledger shows your total tax liability after netting off for a particular month. Not to mention, the ledger can be auto-populated.

Period for retention of accounts under GST

According to the GST Act, you need to maintain the account’s books and records for at least 72 months or 6 months. It will be considered from the last date of filing of the Annual Return for that year.

The last date to file the annual return would be 31st December of the following year. For example, for the year 2016-2017, the due date for filing the annual return would be 31/12/2017. The records of 2016-2017 have to be maintained for 6 years, i.e., 31/12/2022.

Tips to keep you organized with your GST compliance

Here are some tips to help you stay organized and on top of your GST compliance:

  • You should keep track of all invoices: You should keep track of all your invoices and receipts related to your business. This way, if at all you have some problem with your client or supplier, then you can show them the proof of the receipt.
  • You need to record the GST transactions in a GST register: You must record your GST transactions in a GST register. It includes all the purchases, sales, and GST that have been received or paid.
  • You can use software like Tally Prime: Tally Prime is a popular accounting software that helps you to automatically calculate GST for you. It saves plenty of time and reduces the errors.
  • You must stay up-to-date with the GST regulations: You must stay up-to-date with the GST regulations. This includes the GST forms, deadlines, and the rates. 
  • You can take professional help if required: You can take professional help if required when you are not sure about GST compliance. Hiring an accountant can help you to make sure that you are up-to-date with all the regulations and rules.

When you follow the GST tips, you avoid making mistakes that may cause harsh penalties and fines.

Also Read: Tips For Effectively Utilising GSTR- 2B For GST Compliance

Is state code mandatory for GST invoices?

Yes, the state code is mandatory for a GST invoice, when the annual aggregate turnover exceeds Rs 5 crore. Moreover, when your business has less than Rs 5 crore turnover, then a 4-digit SAC code should be provided for B2B transactions.

Besides, when you are not registered and the value of the transaction is more than Rs 50,000, then you need to ensure that your invoice has the name, address, and state code of the recipient.

The rules 46 of the CGST mentions the contents of an invoice. The tax invoice provided should contain the following 16 headings:

  • Name, address, and GSTIN of the supplier.
  • Tax invoice number up to 16 characters. 
  • Date of issue.
  • If the buyer is registered, then the name, address, and GSTIN of the recipient.

When the recipient is not registered, and the value is more than Rs 50,000, then the invoice should carry:

  • Name and address of the recipient.
  • State name and state code.
  • HSN code of goods or service accounting code for services.
  • Quantity of goods.
  • Total value of supply of goods/services.
  • Taxable value of supply after adjusting any discount.
  • Applicable rate of GST.
  • Place of supply and name of destination state.
  • If GST is payable on a reverse charge basis.
  • Signature of the supplier.

As you can see, utilizing state codes in GST is a must depending on the transaction scenario. When the purchase involves another state, then the state, along with the state code must be mentioned. 

What is the process to apply GST while recording a sales transaction in a tally?

Below we have briefly discussed the process to apply GST when recording the sales of a transaction in Tally. You can use any software that you are comfortable with. Besides, you can hire an accountant if you want. Usually, most of the businessmen & tradesmen use Tally. 

B2C (Large) Invoices

When you have made a transaction of more than Rs 2.5 lakhs, then the transaction is taken as a B2C (Large) invoice.

You have to do the following when you want to record a sales voucher in Item Invoice mode,

  • You have to choose the unregistered customer ledger, in the Party A/c name.
  • You have to enter the stock item details.
  • You have to mention the rate and the quantity. 
  • Now, choose the appropriate GST ledger depending on the place of supply. 
  • As always, press Ctrl+A to save the sales voucher.
  • Now you have recorded a supply to an unregistered consumer where the total value of sales is more than 2.5 lakhs. It can be viewed on the B2C (Large) Invoices – 5A, 5B of GSTR-1. 

B2C Large Invoices

When you are making an interstate transaction, and the value is less than Rs 2.5 lakhs, then you need to make the transaction as B2C (Small) invoices with all local sales. When you are recording the sales voucher in the item invoice mode, then you need to do the following:

  • In the party A/c name, you have to choose the unregistered customer ledger.
  • Now, you have to enter the stock item details, by choosing the stock item.
  • Choose the rate & quantity.
  • Choose the appropriate GST ledger based on the place of supply. 
  • Then you have to save the details by using Ctrl+A.
  • You have recorded a supply to an unregistered consumer where the total value of sales is less than 2.5 lakhs.
  • You should be able to view the transaction in the B2C (Small) Invoices – 7 of GSTR-1. 

B2C Small Invoices

Here is what you can do when the buyer and the consignee are different.

Sometimes, you may find yourself in a situation where the goods or services have to be delivered to the buyer and may need to be delivered to another party. In the TallyPrime software, you have the ability to update both buyer and consignee details.

This can be done when you are creating the voucher. Of course, you need to ensure that the location is properly entered. When it is interstate, then that detail also should be mentioned clearly.

When you want to record a sales invoice, then you need to do the following:

  • On the party details, you have to use F12 or configure. 
  • Now, set the buyer and consignee details to ‘yes’.
  • You can notice the consignee section on your party details.
  • You have to enter the details of the consignee, including the consignee name, mailing Name, address, and state.
  • Please note that the buyer and consignee details are different
  • Use Ctrl+A to save the details.
  • Use Ctrl+A to save the sales voucher.
  • You can print the buyer and consignee details.
  • Use Alt+P (Print) in the invoice. You can do that by pressing enter and pressing C for configure.
  • Use the option to show the consignee details to yes.
  • Mention the consignee name and other details in your invoice and also print the same.

Conclusion

It becomes evident that any business should consider following best practices for GST transactions. You can make use of the various tools and apps that are available today or go with the traditional method of using the ledger.

Please note, that when you fail to keep track of your records, then authorities will consider the goods and services as unaccounted. Besides, you will be penalized for those unaccounted goods.

Also Read: Everything You Need To Know About Bill To Ship To Transactions In GST

FAQs

  • How are transactions recorded in Tally?

Transactions are recorded in Tally using the following steps:

  • Transaction is an amount that is paid as an expense. You have to click on Alt+G (Go to), then create a voucher, and make the payment by clicking on F5. 
  • You can also make use of the gateway of Tally, then use the vouchers, and then click on F5 to make the payment.
  • What are the accounting entries for GST transactions?

The accounting entries for GST transactions include the following:

  • When there is a sale of goods, then Cash A/c Dr 6,000. To Sale A/c 6,000.
  • When there is a purchase of goods, then Purchase A/c Dr 6,000. To Cash A/c 6,000.
  • When you purchased a capital asset, then Furniture A/c Dr 4,000. To Cash A/c 4,000.
  • When there has been a payment of the composition fees. Composition Fees A/c Dr 50. To Bank A/c 50.
  • How should transactions be recorded?

A transaction should be recorded in books called journals and ledgers. These can be either bought from a stationery shop or you can take the help of an accountant. Of course, these days, you have several accounting apps and other tools to record the transaction.

  • What are the three rules for recording transactions?

The first rule for recording transactions is “Debit what comes in – credit what goes out.” The second rule states that “Credit the giver and Debit the Receiver.” The third rule is “Credit all income and debit all expenses.”

  • Which tool helps you record your transactions?

There are several tools that can help you record transactions. But the most commonly followed method is using a ledger. As you may know, a transaction is an exchange of money like purchase, sale, and payment. It involves both credit & debit.

It helps you record the transactions that have taken place for your business.

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Sumith Roul

Sumith Roul has post-graduation in computer science from Vellore Institute of Technology (VIT), then he decided to become a content writer. He has a writing career spanning more than 18 years, and He has worked with several international clients. His work involves several niches including GST, finance, stock market, and so on. I have designed & worked on several hundred product reviews, blogs, PRs, and other forms of content as well.

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