Lesson 15 of 20

GST entries: purchase, sale, set-off and payment

Follow one month of a small business from its first GST purchase to the cheque for the tax, and the whole cycle becomes clear.

Rates here are assumed. The examples use GST at 18% (CGST 9% + SGST 9%, or IGST 18%) only to show the entries. Actual rates depend on the goods or service and change by notification. For rates and return rules see the official sites gst.gov.in and cbic-gst.gov.in, or ask your accountant.

The month

Shanti Traders, a registered dealer, has these GST transactions in April. All rates are assumed at 18%.

1. Local purchase (5 April)

200 reams of paper at ₹250 from Mohan Paper Mart, same state. Value ₹50,000.

2. Interstate purchase (12 April)

100 boxes of pens at ₹400 from Delhi Pen House, another state. Value ₹40,000.

3. Local sale on credit (8 April)

120 reams at ₹300 to City Book Depot. Value ₹36,000.

4. Local cash sale (10 April)

20 boxes of pens at ₹500. Value ₹10,000.

5. Interstate sale (18 April)

60 boxes of pens at ₹500 to Jaipur Stationers, another state. Value ₹30,000.

6. Sales return (20 April)

City Book Depot returns 10 reams. Value ₹3,000.

7. GST on an expense (25 April)

Courier charges ₹2,000 plus GST, local, paid by bank.

Position at the end of April

Input credit (₹16,560) is more than output tax (₹13,140), so nothing is payable in cash this month, and ₹3,420 of credit is carried forward.

The set-off journal

The law lays down the order in which credit is used. In outline: IGST credit is used first, against IGST liability and then against CGST and SGST; CGST credit is used against CGST and then IGST; SGST credit against SGST and then IGST; CGST and SGST credits cannot be used against each other. The exact rules are in the CGST Act and Rules and on the GST portal; the accountant applies them.

Here each head's own credit covers its own liability, so the set-off is straightforward. It is passed as a Journal (F7) on the last day of the month; in Tally the Journal is marked as a statutory adjustment using Alt+J (Stat Adjustment), choosing GST and the nature of adjustment, so that it flows to the GST reports.

After this entry the Output ledgers are nil. The Input ledgers show the credit carried forward: CGST ₹810, SGST ₹810 and IGST ₹1,800, a total of ₹3,420. They appear in the Balance Sheet under Duties & Taxes as amounts recoverable.

If tax had been payable

Suppose in May output CGST is ₹9,000 against input CGST of ₹6,000 including the amount brought forward. After the set-off journal, Output CGST still shows ₹3,000 payable. When it is paid through the portal, record a Payment (F5), again using the statutory payment option so that Tally links it to GST:

Many accountants first transfer the net payable to a ledger such as "GST Payable" or record the deposit through an electronic cash ledger account. The principle is the same: the liability ledger is debited when tax is paid.

Checking against Tally's reports

• GSTR-3B report: outward supplies and tax, eligible input credit, and tax payable for the month. The totals should agree with the table above.
• GSTR-1 report: invoice-wise outward supplies, with a list of vouchers that have errors or missing details.
• Ledger vouchers of each tax ledger: opening balance, the month's entries and the closing balance.

If the reports and the ledgers disagree, a voucher has usually been entered without GST details, or a tax ledger was used in a plain journal without the statutory adjustment marking.

Using single tax ledgers

An office that keeps one ledger each for CGST, SGST and IGST does not need the set-off journal between input and output: purchases debit the ledger, sales credit it, and its balance at the month end is the net amount payable (credit balance) or carried forward (debit balance). Only the cross-utilisation between heads and the payment need entries.

Your responsibility and the accountant's

If you enter the vouchers, your job is that each one has the correct party, GSTIN, place of supply, item, HSN, rate and invoice number, and that returns and notes are linked to their original invoices. The return itself, the set-off under the current rules, reverse charge, blocked credits and the payment are the accountant's decisions. Never file or pay on the strength of a tutorial.

Questions learners ask

All lessons

An independent learning site. Tally and TallyPrime are trademarks of Tally Solutions Private Limited. This site is not connected with, approved by or paid by Tally Solutions, and uses none of its logos, screens or course material. Keys and menu paths were checked against Tally's own help site on 12 November 2026; the software changes with each release, so if your screen differs, follow Tally's help (press Ctrl+F1). Tax treatment in the examples is for learning only: ask your accountant.