The Goods and Services tax (GST) has been specified as one of most important tax reforms post-independence. It is a tax trigger, which will lead to business transformation for all important industries. In this article, we will discuss on Impact of GST on Accounting & Financial Statements.
Impact of GST on Accounting
There will be an enormous consequence on the Accounting and Reporting processes pre as well as post GST. There will be a compelling desire to have GST compliant invoices, record expenses, track inventory and finally automatically prepare GST-ready tax returns.
It thus encompasses the overhaul of the entire business financial processes along with the accounting and financial reporting structure. The accounting system in companies will witness crucial changes in revenue reporting, calculation of tax holiday incentives, and the way tax credit is written off. To fully comprehend the impact, companies will require to evaluate the modifications GST will bring on the financial reporting and indirect tax accounting. Accordingly, companies will be able to figure out the realignment in accounting and financial reporting for a valid revenue recognition.
Now, accounting treatment of various indirect taxes are covered under the Indian Accounting Standards (IND AS) where various taxes are treated based on their nature and the point of levy. GST is a consumption-based or destination based tax, which indicates that all tax components are levied at the point of supply.
GST Affects on Accounting Structure
GST will significantly affect the accounting structure of companies is the tax credit. Various indirect taxes such as luxury tax, octroi, entry tax, CST do not fall into the tax credit. However, after the GST comes into effect, these taxes will be eligible for tax credit. However, as per the standard accounting principles, refundable taxes are not taken as an expense—the cost incurred in the acquisition of asset but are considered as an asset in the accounting framework.
you must keep records and accounts for GST so that you can:
- work out the tax you owe and / or can reclaim
- fill in your quarterly GST return
- make sure you are paying the right amount of GST at the right time
Also, Books and records you must maintain include:
- annual accounts, including trading and profit and loss accounts
- bank statements and paying-in slips
- cash books and other account books
- credit or debit notes you issue or receive
- import and export documents
- orders and delivery notes
- purchase and sales books