Impact Of Gst On Accounting & Financial Statements

By Author: Sumit Biswas
Total Articles: 24
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The Goods and Services Tax (GST) has been specified as one of the most crucial tax reforms post-independence. It is a tax trigger, which will lead to business transformation for all important industries. In this article, we will talk about the impact of GST on Accounting & Financial Statements.

Know about Impact of GST on Accounting

There will be a tremendous effect 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 industry financial processes along with the accounting and financial reporting structure. The accounting system in companies will witness significant differences in revenue reporting, calculation of tax holiday incentives, and the way tax credit is written off. To fully understand 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 comprehend the realignment ...
... in accounting and financial reporting for valid revenue recognition.

Now, accounting treatment of various indirect taxes is covered under the Indian Accounting Standards (IND AS) where various taxes are treated based on their nature and the point of the levy. GST is a consumption-based or destination-based tax, which indicates that all tax components are levied at the point of supply.

GST Effects on Accounting Structure

GST will considerably 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. Regardless, as per the standard accounting principles, refundable taxes are not taken as an expense—the cost incurred in the acquisition of assets but are considered as an asset in the accounting framework.

Know Impact of GST on Accounting & Financial Statements