How to Record Purchase Entry with GST in Accounting

Goods and Services Tax (GST) is an essential part of business transactions in India. Every business that is registered under GST needs to record purchase entries accurately to claim Input Tax Credit (ITC) and maintain compliance. In this article, we will discuss the process of recording a purchase entry with GST in accounting.

What is a Purchase Entry?

A purchase entry refers to the recording of goods or services purchased by a business. This includes details like invoice number, supplier details, GST amount, and total payable amount. Proper documentation of purchase entries helps in tax calculations and availing ITC under GST.

Components of a GST Purchase Entry

When recording a purchase entry, the following details must be included:

Invoice Date & Number – The date of the invoice and its unique number.
Supplier Details – Name, GSTIN, and address of the supplier.
Type of Supply – Intra-state (CGST & SGST) or Inter-state (IGST).
Item Description – Details of goods or services purchased.
HSN/SAC Code – The classification of goods or services under GST.
Taxable Value – The total value of goods/services before tax.
GST Amount – The amount of CGST, SGST, or IGST charged.
Total Amount Payable – The final invoice amount including GST.
Payment Mode – Cash, cheque, or bank transfer.

Steps to Record a Purchase Entry in Accounting Software

Most accounting software, such as Tally, QuickBooks, or Zoho Books, allows businesses to record GST-compliant purchase entries. Below is a general process:

Step 1: Create Supplier Ledger

Enter supplier details, including GSTIN.
Set the ledger under the “Sundry Creditors” group.

Step 2: Create Purchase Ledger

Define the ledger as “Purchase” and select the applicable GST rates.

Step 3: Enter Purchase Invoice Details

Go to the Purchase module.
Select the supplier and enter invoice details (date, number, and items purchased).

Step 4: Apply GST Tax

Based on the supplier’s location, apply CGST & SGST (for intra-state) or IGST (for inter-state).

Step 5: Save and Record Payment

Once the purchase entry is saved, record the payment details when the invoice is paid.

Example of a GST Purchase Entry

Let’s say you purchase raw materials worth ₹50,000 from a supplier in the same state. The GST rate is 18% (CGST 9% + SGST 9%).

Particulars	Amount (₹)
Purchase Value	50,000
CGST (9%)	4,500
SGST (9%)	4,500
Total Amount Payable	59,000

The entry in accounting software would look like this:

Debit: Purchase Account ₹50,000
Debit: CGST Account ₹4,500
Debit: SGST Account ₹4,500
Credit: Supplier Account ₹59,000

Importance of Recording GST Purchase Entries Correctly

Claiming Input Tax Credit (ITC): Accurate purchase records help businesses claim ITC and reduce their GST liability.
GST Return Filing: Proper documentation is crucial for filing GSTR-3B and GSTR-2A.
Compliance & Audits: Well-maintained records ensure smooth audits and prevent penalties.
Financial Management: Keeping track of purchases helps in cost management and budgeting.

Purchase Entries in Tally Software

If you are a tally software user and still wondering how to pass purchase entries in tally under the GST system then you are in the right place.

We have tried to help you out by writing this small article to ease your job. We are adding a video of a webinar recently conducted by Tally Software. After watching this video you will learn below things:

Purchases made from local suppliers and Interstate suppliers.
Purchase made from UN-registered dealer.
Import of Goods and Services.
Taking purchase returns.
Advance payment received from customers against future supplies, which becomes part of your tax liability under the reverse charge mechanism.
Availing Input Tax credit on Purchases made from local suppliers and Interstate suppliers.
Availing Input Tax credit from unregistered dealers and your tax liability under reverse charge system.
Taking Input Tax credit on Import purchases made from foreign suppliers.
ISD Credit. (credit from Input Service Distributor)
TDS Credit.
Passing journal entries for reverse charge mechanism to take automatic effect in GST returns.
Reversal of Input Tax credit.
Reconciliation & e-filing of GSTR-1 & GSTR-2.

I hope above video will be very helpful to you as far as your GSTR-2 return is concern in tally. Click here for more videos

Here’s an FAQ section with five common questions on Purchase Entry with GST:

Frequently Asked Questions (FAQ)

What is a GST purchase entry?

A GST purchase entry records the purchase of goods or services in accounting, including details like invoice number, supplier GSTIN, tax amounts, and total payable. It helps businesses claim Input Tax Credit (ITC) and comply with GST regulations.

How do I record GST in a purchase entry?

To record GST in a purchase entry, include the invoice details, apply CGST & SGST (for intra-state purchases) or IGST (for inter-state purchases), and ensure correct tax calculations in accounting software.

Can I claim Input Tax Credit (ITC) on all purchases?

No, ITC can only be claimed on eligible business-related purchases where the supplier has filed the invoice details in GSTR-1, and the invoice appears in GSTR-2B. Certain expenses, like personal purchases or exempt goods, are not eligible for ITC.

What happens if I make a mistake in a GST purchase entry?

Errors in GST purchase entries can lead to incorrect tax calculations, issues with ITC claims, and potential penalties. Mistakes should be corrected by issuing a debit/credit note or making adjustments in the GST return.

Which accounting software is best for GST purchase entries?

Popular accounting software for GST-compliant purchase entries includes Tally, QuickBooks, Zoho Books, and Marg ERP. These tools help automate GST calculations and ensure compliance with GST return filings.

Conclusion

Recording purchase entries with GST correctly is crucial for business compliance and financial management. By maintaining accurate records, businesses can claim ITC efficiently and avoid legal issues. Using accounting software can simplify this process and ensure accurate GST calculations.

For more updates on GST and taxation, stay tuned to GST INDIA NEWS!

How to Record Purchase Entry with GST in Accounting

What is a Purchase Entry?

Components of a GST Purchase Entry