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Chapter 3 · Lesson 5 of 6 · ⏱ 35 min

GST entries: recording CGST, SGST and IGST in the journal

🎯 After this lesson you will be able to:
  • Explain why input GST is an asset and output GST is a liability
  • Pass journal entries for purchases, sales, expenses and assets with CGST + SGST or IGST
  • Set off input tax credit against output tax in the correct order
  • Pass the entry for the net GST paid through the Electronic Cash Ledger

Look at any bill from a shop today and you will see lines like “CGST 9%” and “SGST 9%”. In Chapter 2 you learnt what GST is. Today you will learn how an accountant records it. The good news: you do not need any new rule. GST entries use the same debit–credit rules you already know; we only open a few new accounts. By the end of this lesson you will be able to journalise a full month of GST transactions and calculate exactly how much tax the shop must pay to the government.

1. GST in the books: the shop is only a collector

Sharma Traders of Aligarh (UP) buys goods worth ₹1,00,000 from Kanpur and pays ₹18,000 GST on top. It sells those goods for ₹1,50,000 in Agra and collects ₹27,000 GST from the customer. Is the ₹27,000 Sharma Traders’ income? No! It belongs to the government. Is the ₹18,000 an expense? Also no, because the law lets Sharma Traders deduct it from the ₹27,000. So Sharma Traders pays the government only 27,000 − 18,000 = ₹9,000. GST passes through the business; it does not affect its profit.

So we must not mix GST with purchases, sales or expenses. We keep it in separate accounts, and we separate the two directions:

Input tax = GST paid by the business on its purchases of goods, services and assets. The business can use it to reduce its own tax payable. This benefit is called Input Tax Credit (ITC). Input tax is something the business will get back, so it is an asset: record it on the debit side.

Output tax = GST collected by the business on its sales. It must be paid to the government, so it is a liability: record it on the credit side.

2. The six GST accounts

Because CGST, SGST and IGST go to different governments and are tracked separately on the GST portal, NCERT uses six accounts:

AccountWhen usedNatureNormal side
Input CGST A/cPurchase within the stateAssetDebit
Input SGST A/cPurchase within the stateAssetDebit
Input IGST A/cPurchase from another state (or import)AssetDebit
Output CGST A/cSale within the stateLiabilityCredit
Output SGST A/cSale within the stateLiabilityCredit
Output IGST A/cSale to another stateLiabilityCredit

IN = In my favour (the government owes me credit, so it is an asset, debit). OUT = Owed to the government (a liability, credit). And from Chapter 2: same state → CGST + SGST (half each); different states → IGST (full rate).

Three common mistakes: (1) adding GST to Purchases A/c or Sales A/c (Purchases and Sales are always recorded at the value before GST); (2) opening one account called “GST A/c” (the exam expects the separate Input/Output CGST, SGST, IGST accounts); (3) forgetting that CGST and SGST are equal halves: at 18%, each is 9%.

3. Purchases with GST

When you buy goods, the supplier’s bill shows the value of goods plus GST. You debit Purchases A/c with the value, debit the Input tax accounts with the GST, and credit the supplier (credit purchase), Cash A/c or Bank A/c with the full bill amount.

Sharma Traders, Aligarh (UP), GST @ 18%:
Apr 2, 2026: Bought goods worth ₹80,000 on credit from Singh Wholesale, Kanpur (UP).
Apr 5, 2026: Bought goods worth ₹50,000 from Delhi Paper Co., Delhi, paying by NEFT.
  1. Apr 2: Aligarh and Kanpur are both in UP → intra-state → CGST 9% + SGST 9%. CGST = 9% of 80,000 = ₹7,200; SGST = ₹7,200. Bill = 80,000 + 7,200 + 7,200 = ₹94,400, owed to Singh Wholesale.
  2. Apr 5: UP to Delhi → inter-state → IGST 18% = 18% of 50,000 = ₹9,000. Bill = ₹59,000, paid through bank.
DateParticularsL.F.Dr (₹)Cr (₹)
2026
Apr 2		Purchases A/c Dr.80,000
Input CGST A/c Dr.7,200
Input SGST A/c Dr.7,200
To Singh Wholesale A/c94,400
(Being goods bought on credit, CGST and SGST @ 9% each)
Apr 5Purchases A/c Dr.50,000
Input IGST A/c Dr.9,000
To Bank A/c59,000
(Being goods bought from Delhi, IGST @ 18%, paid by NEFT)

Trade discount first, GST after. GST is charged on the value after trade discount. List price ₹20,000 less 10% trade discount = ₹18,000; GST @ 18% is on ₹18,000, not ₹20,000.

A kirana shop in Meerut (UP) bought packed food items worth ₹20,000 for cash from a wholesaler in Ghaziabad (UP). GST @ 5% (CGST 2.5% + SGST 2.5%). Choose the three debits and the credit.

Same state, so which two taxes? GST paid on a purchase is input or output?
Intra-state purchase → Input CGST ₹500 and Input SGST ₹500 (2.5% of 20,000 each). Cash paid = ₹21,000.
DateParticularsL.F.Dr (₹)Cr (₹)
Purchases A/c Dr.20,000
Input CGST A/c Dr.500
Input SGST A/c Dr.500
To Cash A/c21,000
(Being goods bought for cash, CGST and SGST @ 2.5% each)

4. Sales with GST

On a sale, the customer pays the value of goods plus GST. Debit the customer (credit sale), Cash A/c or Bank A/c with the full invoice amount; credit Sales A/c with the value and the Output tax accounts with the GST.

Sharma Traders, Aligarh (UP), GST @ 18%:
Apr 10, 2026: Sold goods for ₹1,00,000 on credit to Verma Stores, Agra (UP).
Apr 12, 2026: Sold goods for ₹60,000 to Rathore & Sons, Jaipur (Rajasthan); payment received by UPI.
  1. Apr 10: intra-state → Output CGST = 9% of 1,00,000 = ₹9,000; Output SGST = ₹9,000. Verma Stores owes 1,00,000 + 18,000 = ₹1,18,000.
  2. Apr 12: inter-state → Output IGST = 18% of 60,000 = ₹10,800. Bank receives ₹70,800.
DateParticularsL.F.Dr (₹)Cr (₹)
2026
Apr 10		Verma Stores A/c Dr.1,18,000
To Sales A/c1,00,000
To Output CGST A/c9,000
To Output SGST A/c9,000
(Being goods sold on credit within UP, CGST and SGST @ 9% each)
Apr 12Bank A/c Dr.70,800
To Sales A/c60,000
To Output IGST A/c10,800
(Being goods sold to Jaipur, IGST @ 18%, received by UPI)

Sales A/c is credited with ₹1,00,000, not ₹1,18,000. The extra ₹18,000 is not our revenue; it is the government’s money that we are holding. If you put it in Sales, your profit will be overstated.

A mobile store in Lucknow (UP) sold phones worth ₹40,000 on credit to Arora Traders, Dehradun (Uttarakhand). GST @ 18%. Pick the debit and the two credits.

UP to Uttarakhand: one tax at the full rate. Tax collected on a sale is input or output?
Inter-state sale → Output IGST = 18% of 40,000 = ₹7,200. Arora Traders owes ₹47,200.
DateParticularsL.F.Dr (₹)Cr (₹)
Arora Traders A/c Dr.47,200
To Sales A/c40,000
To Output IGST A/c7,200
(Being goods sold on credit to Dehradun, IGST @ 18%)

Sharma Traders sold goods with a list price of ₹50,000 to Gupta Stores, Mathura (UP), on credit, allowing a 10% trade discount. GST @ 18%. By how much will Gupta Stores’ account be debited (in ₹)?

First remove the trade discount. Then add CGST 9% + SGST 9% on the net value.
Net value = 50,000 − 10% = ₹45,000. CGST = 4,050; SGST = 4,050. Gupta Stores A/c is debited with 45,000 + 4,050 + 4,050 = ₹53,100. (Sales A/c ₹45,000; Output CGST ₹4,050; Output SGST ₹4,050.)

5. Expenses and assets with GST

A business pays GST not only on goods but also on many services (transport, advertising, insurance, telephone, repairs) and on assets (furniture, computers, machines). In NCERT’s treatment, this GST is also Input tax: debit the expense or asset account with the value and the Input tax accounts with the GST.

Sharma Traders, Aligarh (UP):
Apr 18: Paid railway freight of ₹8,000 by NEFT (CGST 2.5% + SGST 2.5%).
Apr 20: Bought a computer for office use for ₹40,000 from a local dealer, paid by cheque (CGST 9% + SGST 9%).
  1. Freight: CGST = 2.5% of 8,000 = ₹200; SGST = ₹200. Total paid = ₹8,400.
  2. Computer: CGST = 9% of 40,000 = ₹3,600; SGST = ₹3,600. Total paid = ₹47,200. The computer is an asset, so debit Computer A/c, not Purchases A/c.
DateParticularsL.F.Dr (₹)Cr (₹)
2026
Apr 18		Freight A/c Dr.8,000
Input CGST A/c Dr.200
Input SGST A/c Dr.200
To Bank A/c8,400
(Being railway freight paid with GST)
Apr 20Computer A/c Dr.40,000
Input CGST A/c Dr.3,600
Input SGST A/c Dr.3,600
To Bank A/c47,200
(Being computer bought for office use with GST)

In real life, the GST law “blocks” input tax credit on a few items (for example, food and beverages for staff, or motor cars used for personal travel); the GST on such items becomes part of their cost. At Class 11 level, follow NCERT: treat GST on all business purchases, expenses and assets as Input tax unless the question says otherwise.

6. Set-off: using input tax to pay output tax

At the end of the tax period (usually a month), the business works out its liability. It first uses its Input tax credit to “pay” the Output tax. This adjustment is called set-off. Whatever Output tax is still left is paid in money: the business deposits it on the GST portal, where it sits in the Electronic Cash Ledger, and is then used to pay the tax.

Order of set-off (as in NCERT):

  1. Input IGST is used first against Output IGST, then against Output CGST, and any balance against Output SGST.
  2. Input CGST is used against Output CGST (and, if anything is left, against Output IGST).
  3. Input SGST is used against Output SGST (and, if anything is left, against Output IGST).
  4. CGST credit can never be used for SGST, and SGST credit can never be used for CGST, because they belong to different governments.

Entries: set-off → debit the Output account, credit the Input account (both are cleared). Payment of the balance → debit the Output account, credit Electronic Cash Ledger A/c (as shown in NCERT; many schools also accept “To Bank A/c” when the balance is paid directly from the bank).

Sharma Traders, Aligarh (UP), April 2026, GST @ 18%. Journalise, then set off and record the payment of the balance.
(i) Bought goods ₹2,00,000 on credit from Kanpur (UP).
(ii) Bought goods ₹1,00,000 from Delhi, paid by NEFT.
(iii) Sold goods ₹2,50,000 on credit to Agra (UP).
(iv) Sold goods ₹1,50,000 to Jaipur (Rajasthan), received by NEFT.
(v) Paid ₹10,000 for newspaper advertisement by UPI (CGST 9% + SGST 9%).
  1. Tax on each transaction:
    No.Value (₹)Input CGSTInput SGSTInput IGSTOutput CGSTOutput SGSTOutput IGST
    (i)2,00,00018,00018,000
    (ii)1,00,00018,000
    (iii)2,50,00022,50022,500
    (iv)1,50,00027,000
    (v)10,000900900
    Total18,90018,90018,00022,50022,50027,000
  2. Calculation sheet:
    ParticularsCGST (₹)SGST (₹)IGST (₹)
    Output tax22,50022,50027,000
    Less: Input IGST (used first against IGST)18,000
    Less: Input CGST18,900
    Less: Input SGST18,900
    Payable in cash3,6003,6009,000
  3. Total payable = 3,600 + 3,600 + 9,000 = ₹16,200. (Check: total output 72,000 − total input 55,800 = 16,200 ✔)

Journal of Sharma Traders

DateParticularsL.F.Dr (₹)Cr (₹)
(i)Purchases A/c Dr.2,00,000
Input CGST A/c Dr.18,000
Input SGST A/c Dr.18,000
To Creditors A/c2,36,000
(Being goods bought on credit within UP)
(ii)Purchases A/c Dr.1,00,000
Input IGST A/c Dr.18,000
To Bank A/c1,18,000
(Being goods bought from Delhi)
(iii)Debtors A/c Dr.2,95,000
To Sales A/c2,50,000
To Output CGST A/c22,500
To Output SGST A/c22,500
(Being goods sold on credit within UP)
(iv)Bank A/c Dr.1,77,000
To Sales A/c1,50,000
To Output IGST A/c27,000
(Being goods sold to Jaipur)
(v)Advertisement A/c Dr.10,000
Input CGST A/c Dr.900
Input SGST A/c Dr.900
To Bank A/c11,800
(Being advertisement expense paid by UPI)
(vi)Output IGST A/c Dr.18,000
To Input IGST A/c18,000
(Being Input IGST set off against Output IGST)
(vii)Output CGST A/c Dr.18,900
To Input CGST A/c18,900
(Being Input CGST set off against Output CGST)
(viii)Output SGST A/c Dr.18,900
To Input SGST A/c18,900
(Being Input SGST set off against Output SGST)
(ix)Output IGST A/c Dr.9,000
Output CGST A/c Dr.3,600
Output SGST A/c Dr.3,600
To Electronic Cash Ledger A/c16,200
(Being balance GST paid)

After entries (vi) to (ix), every Input and Output account shows a zero balance. That is the sign you did it right: all the credit has been used, and all the liability has been cleared.

6.1 When Input IGST is more than Output IGST

This is the case examiners like. The extra IGST credit is not wasted: it moves on to Output CGST, and then to Output SGST.

Mishra Electronics, Lucknow (UP), May 2026 totals: Output IGST ₹20,000; Output CGST ₹15,000; Output SGST ₹15,000; Input IGST ₹24,000; Input CGST ₹5,000; Input SGST ₹5,000. Pass the set-off and payment entries.
  1. Input IGST ₹24,000: first ₹20,000 against Output IGST (IGST fully cleared). The remaining ₹4,000 goes against Output CGST.
  2. Output CGST: 15,000 − 4,000 (IGST credit) − 5,000 (CGST credit) = ₹6,000 payable.
  3. Output SGST: 15,000 − 5,000 (SGST credit) = ₹10,000 payable.
  4. Cash payable = 6,000 + 10,000 = ₹16,000. (Check: output 50,000 − input 34,000 = 16,000 ✔)
DateParticularsL.F.Dr (₹)Cr (₹)
Output IGST A/c Dr.20,000
To Input IGST A/c20,000
(Being IGST credit set off against Output IGST)
Output CGST A/c Dr.9,000
To Input IGST A/c4,000
To Input CGST A/c5,000
(Being balance IGST credit and CGST credit set off against Output CGST)
Output SGST A/c Dr.5,000
To Input SGST A/c5,000
(Being SGST credit set off against Output SGST)
Output CGST A/c Dr.6,000
Output SGST A/c Dr.10,000
To Electronic Cash Ledger A/c16,000
(Being balance GST paid)

For June 2026 a trader in Kanpur has: Output CGST ₹30,000, Output SGST ₹30,000, no Output IGST; Input CGST ₹21,000, Input SGST ₹21,000, Input IGST ₹6,000. Following the NCERT order of set-off, how much GST in total must be paid in cash (in ₹)?

There is no Output IGST, so the Input IGST moves on to Output CGST first. CGST and SGST credits stay in their own lanes.
CGST: 30,000 − 6,000 (IGST credit) − 21,000 = 3,000. SGST: 30,000 − 21,000 = 9,000. Total cash payable = 3,000 + 9,000 = ₹12,000.

After set-off, a shop still owes CGST ₹2,500 and SGST ₹2,500. It pays this from the amount deposited on the GST portal (Electronic Cash Ledger). Pick the two debits and the credit.

Paying a liability reduces it. Which accounts hold the liability?
The liabilities (Output CGST and Output SGST) decrease → debit. The money deposited on the portal is used → credit Electronic Cash Ledger A/c.
DateParticularsL.F.Dr (₹)Cr (₹)
Output CGST A/c Dr.2,500
Output SGST A/c Dr.2,500
To Electronic Cash Ledger A/c5,000
(Being balance GST paid)

7. Try the GST calculator

Enter a value, a rate and whether the sale is within the state or across states. See how the tax splits, and how the invoice total is formed.

8. Exam tips

  • Always check the states of buyer and seller first. That single check decides CGST + SGST or IGST.
  • Show a small working note for each tax amount. In a 4-mark GST question, the calculation sheet (output − input = payable) often carries a mark of its own.
  • Write the six account names exactly: Input CGST A/c, Output IGST A/c, and so on.
  • NCERT uses rates like 5%, 12%, 18% and 28% in its exercises. Rates are revised by the GST Council from time to time; in the exam, use exactly the rate given in the question.
Input IGST A/c appearing in the books of a trader is:
  • an asset
  • a liability
  • an expense
  • an income
Input IGST is tax already paid on purchases that the trader can use as credit to reduce his tax liability. Something that gives a future benefit to the business is an asset.
Which set-off is not allowed under GST?
  • Input IGST against Output CGST
  • Input CGST against Output IGST
  • Input IGST against Output SGST
  • Input CGST against Output SGST
CGST goes to the Centre and SGST to the State, so CGST credit can never be used to pay SGST (or vice versa). IGST credit can be used for all three.

📌 Points to remember (Quick Revision)

  • GST is collected for the government, so it never goes into Purchases, Sales or expense accounts; keep separate Input and Output accounts.
  • Input CGST/SGST/IGST = tax paid on purchases, expenses and assets: asset, debit. Output CGST/SGST/IGST = tax collected on sales: liability, credit.
  • Same state → CGST + SGST (half each); different states → IGST (full rate). Trade discount is deducted before calculating GST.
  • Set-off: Input IGST against IGST, then CGST, then SGST; Input CGST and SGST against their own output (then IGST); never CGST against SGST.
  • Set-off entry: Output A/c Dr. To Input A/c. Balance paid: Output A/c Dr. To Electronic Cash Ledger A/c.

Pressing this saves your progress on this phone/computer.