Accouting For Tax For Sales Return & Purchase Return

Allied Interactive System P Ltd
watch_later 3 years, 8 months ago

All efforts are being made to reconcile outward supply data posted by a supplier with the inward data available to the recipient.

Now this outward supply can happen in case of sales as well as purchase return.

So while accounting for tax liability for sales we are crediting the respective GST Output A/c.

Now, the questing arises whether we should follow the same  principle of crediting the respective  GST Output A/c in case of Purchase Return or should we  follow the Old principle of reversing Input Taxes since at the time of purchases Input Tax were credited.

This is important because probably the GSTN portal recognizes only Outward Supply and would account for tax liability for all supplies ( including Purchase Return ) under Output Tax Head.

Similar kind of situation would arise in case of Sales Return.

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2 Answers

Pulkit Sharma watch_later 3 years, 8 months ago

From accounting point of view it does make any difference, as both treatments will have same impact on balance sheet.

Taking GST into consideration which is charged on Supply and in earlier laws the tax was mostly on sale.

When one purchase goods, it is supply and at the time or purchase returns again it is supply. So I think the correct way should be to credit outward tax ledger instead of reversing input tax ledger.

But again one has to carefully account the transaction as this outward supply should not affect your revenue.

Software should be designed in such a way that correct tax details can be extracted and respective P/L ledgers do not get affected by tax adjustment entries.

For instance our habit and practice has been associating output tax with revenue, but under GST this may not be the case.

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Allied Interactive System P Ltd watch_later 3 years, 8 months ago

Thanks for your revert.

We are fully in agreement with your view.

However , a small issue is cropping up when such purchase return is being made to Un-Registered / Party under Compound Levy .

Reverse charge had been paid at the time of purchase and to create such Reverse Charge liability , Reverse Charge Recoverable A/c was debited and SGST & CSGT Output OR IGST Output was credited.

Now at the time of Purchase Return when returning to Registered party we are accounting for as Outward supply and creating Output Tax Liability.

But for Purchase Return to unregistered party , we need to credit Reverse Charge Recoverable A/c.

Now the question arises which Tax A/c head - Output OR Input should be debited ?

How will GSTN treat such situations since no reconciliation is possible.

Also , for sale return from un-registered party the situation become a little confusing .

We have no other option but to reverse Output Tax A/c. How will GSTN allow for such reversals?

Hope you can enlighten us on the above matter.

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