GST journal entries, with solved examples

GST collected on sales is not income, and GST paid on purchases is usually not an expense. Both sit in tax accounts until they are set off against each other.

Rates here are assumed. The examples use 18% (CGST 9% + SGST 9%, or IGST 18%) only to show the method. Real rates depend on the goods or service and change by notification. For actual rates and rules see the official sites cbic-gst.gov.in and gst.gov.in.

The idea

Goods and Services Tax has been charged in India since 1 July 2017. It is a tax on supply. A registered dealer pays GST to his supplier on purchases (input tax) and collects GST from his customers on sales (output tax). He pays the government only the difference, because the input tax can be claimed as input tax credit (ITC). So for a registered dealer, tax on purchases is an asset (a claim on the government) and tax on sales is a liability.

Kind of supply	Tax charged	Goes to
Within the same state (intra-state)	CGST + SGST, half the rate each	Centre and State
Within a Union Territory without legislature	CGST + UTGST	Centre and Union Territory
From one state to another (inter-state), and imports	IGST at the full rate	Centre, which shares it with the destination state

Accounts used

Input CGST A/c, Input SGST A/c, Input IGST A/c: tax paid on purchases and expenses. Assets.
Output CGST A/c, Output SGST A/c, Output IGST A/c: tax collected on sales. Liabilities.

Basic entries (intra-state)

Meenakshi Traders, Chennai, registered under GST. All transactions in May 2026, within Tamil Nadu unless stated.

Journal of Meenakshi Traders
Date	Particulars	Dr. (₹)	Cr. (₹)
May 2	Purchases A/c Dr.	1,00,000
	Input CGST A/c Dr.	9,000
	Input SGST A/c Dr.	9,000
	To Vel Suppliers		1,18,000
	(Goods bought on credit, GST 18%)
May 10	Arul Stores Dr.	1,77,000
	To Sales A/c		1,50,000
	To Output CGST A/c		13,500
	To Output SGST A/c		13,500
	(Goods sold on credit, GST 18%)
May 14	Rent A/c Dr.	20,000
	Input CGST A/c Dr.	1,800
	Input SGST A/c Dr.	1,800
	To Bank A/c		23,600
	(Shop rent paid with GST)
May 18	Vel Suppliers Dr.	11,800
	To Purchases Return A/c		10,000
	To Input CGST A/c		900
	To Input SGST A/c		900
	(Goods returned to supplier; input tax reversed)
May 22	Sales Return A/c Dr.	5,000
	Output CGST A/c Dr.	450
	Output SGST A/c Dr.	450
	To Arul Stores		5,900
	(Goods returned by customer; output tax reversed)
	Total	3,36,300	3,36,300

What to notice

Purchases and Sales are recorded at the value without tax. The party's account carries the full amount including tax.
On a return, the tax is reversed along with the goods.
GST on an expense used for the business (rent here) is also input tax.

Inter-state entries

Journal of Meenakshi Traders (inter-state)
Date	Particulars	Dr. (₹)	Cr. (₹)
May 25	Kochi Mart (Kerala) Dr.	94,400
	To Sales A/c		80,000
	To Output IGST A/c		14,400
	(Goods sold to a dealer in another state, IGST 18%)
May 27	Purchases A/c Dr.	50,000
	Input IGST A/c Dr.	9,000
	To Bengaluru Wholesale (Karnataka)		59,000
	(Goods bought from another state, IGST 18%)
	Total	1,53,400	1,53,400

Set-off and payment at the month end

First find the balance of each tax account for May.

Tax	Output tax (liability)	Input tax (credit)
CGST	13,500 − 450 = 13,050	9,000 + 1,800 − 900 = 9,900
SGST	13,500 − 450 = 13,050	9,000 + 1,800 − 900 = 9,900
IGST	14,400	9,000

Input tax credit is used in a fixed order under the GST law (sections 49, 49A and 49B of the CGST Act and the rules under them):

Input IGST is used first: against output IGST, then against CGST and SGST.
Input CGST is used against output CGST, then against output IGST.
Input SGST is used against output SGST, then against output IGST.
Input CGST can never be used against output SGST, nor input SGST against output CGST.

Here each input credit is smaller than its own output tax, so each is set off against its own head and the rest is paid by bank.

Set-off and payment
Date	Particulars	Dr. (₹)	Cr. (₹)
May 31	Output IGST A/c Dr.	14,400
	To Input IGST A/c		9,000
	To Bank A/c		5,400
	(IGST set off and balance paid)
May 31	Output CGST A/c Dr.	13,050
	To Input CGST A/c		9,900
	To Bank A/c		3,150
	(CGST set off and balance paid)
May 31	Output SGST A/c Dr.	13,050
	To Input SGST A/c		9,900
	To Bank A/c		3,150
	(SGST set off and balance paid)
	Total	40,500	40,500

Total paid to the government: ₹5,400 + ₹3,150 + ₹3,150 = ₹11,700. In practice the payment first goes into the dealer's electronic cash ledger on the GST portal; many textbooks show that as a separate account.

When input credit is larger

If input tax of a head exceeds the output tax, the unused credit is carried forward to the next month. It stays as a debit balance in the Input tax account and appears under current assets in the balance sheet.

Special cases

Goods taken by the owner, given as free samples or lost by fire: the input credit taken on those goods is not allowed and must be reversed. Entry: Drawings A/c (or Advertisement A/c, Loss by Fire A/c) Dr. To Purchases A/c and To Input CGST / SGST A/c.
Purchase of a fixed asset for business use: the tax is input tax like any other, where credit is allowed by law.
Unregistered or composition dealers: they cannot claim input credit, so tax paid on purchases is added to the cost of the goods.
Reverse charge: for certain supplies the buyer, not the seller, pays the tax to the government and then claims it as input credit where eligible.

The ordinary rules for these entries, without tax, are on the journal entries page.

Questions students ask

Is GST paid on purchases an expense?

For a registered dealer who can claim input tax credit, no. It is debited to Input CGST, SGST or IGST accounts and set off against tax collected on sales. For those who cannot claim credit, it becomes part of the cost.

Which GST is charged on a sale to another state?

IGST, at the full rate. CGST and SGST are charged on sales within the same state.

Can input CGST be set off against output SGST?

No. CGST credit and SGST credit cannot be used against each other. Each can be used against its own head and against IGST.