GST Advisory

Managing Books of Accounts under GST- Best Practices

Managing books of accounts under GST can be a tedious task for many. However, it is one of the significant compliances under the GST law. It is not only mandatory under the law but is also helpful as it allows taxpayers to calculate the amount of tax liabilities, refunds, ITC, etc. It can also serve as proof in case of litigations. Thus, it is a crucial component of managing the business; therefore, one should be aware of the best way to manage books of accounts. In this article, we will throw light on that, but before that, let’s briefly understand bookkeeping. 

Managing Books of Accounts under GST- Introduction

Bookkeeping under GST must be in line with local laws and regulations. This will allow the business to stay compliant with taxes etc. Proper management of books of account helps business owners to analyze and monitor their cash flow and also financial transactions.

A business or an entity should be aware of the amount of money they transact and the accurate details of every transaction. Hence maintaining books of account under GST is crucial. It will help businesses to accurately produce invoices, bills, and accounting reports.

Another significant use of bookkeeping^[1] is maintaining the records to calculate the taxes and other dues a business is liable to pay to various authorities and government agencies. In such scenarios scope of the mistake is significantly less. Therefore, properly maintaining records can be highly effective.

An entity or a business not maintaining proper records or books of accounts will fall short of maintaining compliance requirements and is liable to face penal consequences.

Another critical use of maintaining records under GST is that it will help in maintaining a record of accounts receivable and accounts payable. Keeping a tab on these details will help the person or the business to pay taxes correctly.

Provisions of Law-

According to the GST Act, businesses registered under the GST law are required to maintain the books of accounts for 6 years. In case of multiple GST registrations, one must maintain the books of account for each GSTIN.

As per Section 35 of the CGST Act, those registered under GST are required to keep and maintain the records at the principal place of their business. An owner, or operator of the warehouse, godown, etc., is required to maintain the documents, as mentioned earlier, regardless of whether the person is a registered person.

Under GST, the commissioner can also notify the class of persons to maintain additional accounts or documents for a particular purpose or may notify to maintain accounts in any other manner as may be prescribed.

Details of Records to be kept

The following details of the records should be kept-

• Accounts of stock related to the goods obtained and supplied, which contains the details of the opening balance, supply, lost goods, stolen goods, destroyed goods, goods written off or disposed of as gifts or free samples, and stock balance
• A separate account of advances obtained and paid and the adjustment made therewith
• An account with the details of the tax payable, tax paid and tax collected, ITC claimed, credit note, debit note, tax invoice, delivery challan received or issued during a specific tax period
• Name and the address of those to whom the supplies have been made
• The address of the location wherein the goods have been stored, including the goods that are stored during the transit, with the details of the stock stored therein
• The month-wise production account signifies the quantitative aspects of the raw materials or services utilized in manufacturing. Quantitative details of those goods that are manufactured
• Accounts display the quantitative information of the goods utilized in the services. Details regarding the input services utilized and services supplied.

As per the GST provisions, every registered person should maintain a true account of the aforesaid things. It is crucial to maintain an account of the production or manufacture of goods and also an account of the inward and outward supply of the goods and/or services.

What Should A Taxpayer Do For Managing Books Of Accounts Under GST?

As per the GST law, taxpayers must maintain books of account at the principal place of business.

If GST records are maintained manually, the accountant must incorporate the serial number system for each book of account. When the record is maintained manually, in case any entry in the registers or documents has to be erased or re-written, then it has to be done under attestation, and the correct entry must be recorded.

If the accounts are maintained electronically, the records have to be authenticated with a digital signature, and they should be accessible from each place of business specified under the GST certificate.

Further, the documents or books of account of a registered person that is found at any premises, unless proved otherwise, will be presumed to be maintained by the taxpayer.

In case any taxable goods are stored at a place other than those declared by the taxpayer without any proof, then they will be liable to be taxed. Thus, the taxpayer should maintain all records under GST as prescribed under law.

Best Way of Managing Books of Accounts

Businesses can embrace certain best practices for managing books of accounts, especially for those businesses with multiple GSTINs. Multiple GSTIN means when a company has multiple locations or offices, then such a company is required to apply for GST registration for every location. Companies having just a single office or location have one GSTIN. It is comparatively easier for those businesses to manage the accounts.

However, when businesses have multiple locations, and that too in different states and UTs, GSTIN is a necessary pre-requisite. A person with two different businesses within one state or UT can also get an individual GSTIN for each business vertical.

Maintaining the accounts and records for businesses having different GSTIN involves collecting the GSTIN and filing statements/returns separately. It impacts the way one manages the books of accounts.

In the case of multiple GST registration, there are different ways of managing books of accounts that ensure GSTIN-wise reporting. One of the ways to manage various GSTINs is to form individual company accounts for every branch.

One can compile all the details pertaining to that GSTIN into reports. This can be done by extracting the information from the records of the company’s branch.

Thus, the company records being maintained centrally can be recorded as individual companies for each GSTIN. However, many businesses need to more highly accept this method because companies become apprehensive about whether they will be able to generate consolidated financial statements, analyses, and forecasts based on the data.

In the alternative, some companies maintain their accounts in a consolidated manner even after having multiple GST registrations. It allows them to bring together all their different business locations as branches.

With the consolidated company, it results in better data reporting and analysis. It also provides a unified platform to manage accounts. It will necessitate you to distinguish between invoices branch-wise.

Thus, companies or businesses with multiple GST registrations can maintain books of accounts in a consolidated manner or individually. There is no right or perfect method, but it depends upon the company using the method. The company should resort to managing its books of accounts depending on how it functions.

In case the management of every location is individual, a decentralized method will align. However, in case all branches are managed as one and decision is made from the central location, then a consolidated system can be used.

The Consequence of Not Maintaining Books of Accounts under GST

In the case where books of accounts are not maintained in accordance with Section 35(1) then the proper officer shall determine the tax to be paid on goods and/or services that are unaccounted.

According to Section 122(1) (xvi), not keeping or maintaining the books of accounts can also invite penal consequences with hefty fines.

Further, Section 130 of the CGST Act 2017 also allows the confiscation of goods in cases where books of accounts are not maintained. The defaulter shall be liable to confiscate goods if such a person cannot account for any goods on which tax is to be paid by such person.

Conclusion

The books of accounts maintained under GST, including the invoices, credit and debit notes, inward supply and outward supply, etc., should be preserved for 72 months from the deadline of furnishing the annual return for the year relating to the accounts. Thus, the GST law has some extensive record-keeping requirements. Therefore the onus of managing books of accounts is on the taxpayers to ensure compliance with the GST rules and regulations.

In such a scenario, one should follow the best practices for managing books of accounts under GST. This includes following prescribed standards and schedules which are applicable to each business owner in accordance with their eligibility. Further, they should ensure that the transactions are updated regularly and that it is being recorded as and when they happen. Lastly, self-assessment is crucial. Therefore, taxpayers should self-assess to avoid the chances of making errors.

Read Our Article: GST Registration Requirements (Goods and Services)