If your business has to collect GST, you sign up and handle your reporting through the government’s GST portal. This portal features three electronic ledgers: cash, credit, and liability.
The cash ledger shows all the GST payments you’ve made to the government. The credit ledger shows the input credits you have earned. Finally, the liability ledger shows how much you owe.
To explain, imagine you have collected ₹10,000 in GST from your customers. You’ve also paid ₹1,500 in GST to your suppliers. At this point, your credit ledger should show that you have a credit of ₹1,500. That’s for the GST you’ve paid on business purchases. The liability ledger should say that you owe ₹8,500 — that’s the difference between the GST you collected and the GST you paid. Your cash ledger is at nil.
Now, let’s say you sign into the GST portal and make an electronic payment for ₹2,000. The next week, you go to a participating bank and make an over-the-counter payment for ₹3,000. These payments along with their date and other details appear in your cash ledger. Now that you’ve made ₹5,000 in GST payments, the balance in your liability ledger drops from ₹8,500 to ₹3,500.
These electronic ledgers also track the type of GST involved in each transaction. That’s important because input credits don’t apply universally. For instance, you can claim IGST input against any type of GST, but you can’t claim CGST credits against SGST. The electronic ledger system keeps track of these rules for you.
To be on the safe side, you shouldn’t just rely on these electronic ledgers. Instead, you may want to turn to GST-ready accounting tools such as QuickBooks. This accounting program comes with in-built GSTR reports you can upload to the GST portal. Plus, it can help you easily create GST-compliant invoices, keep track of GST liability, and input tax credits.