14 July 2024
In the context of VAT (Value Added Tax) in India, when goods are purchased interstate (i.e., from one state to another), and then subsequently sold interstate, there are specific accounting entries and tax implications:
1. **Interstate Purchase (Input):** - When a business purchases goods from another state (outside its own state): - Debit: Purchases Account - Credit: Input VAT/CST Payable Account
Here, Input VAT/CST Payable Account is used because under VAT, if the purchase is interstate, Central Sales Tax (CST) is applicable until GST was implemented in 2017. Input VAT/CST Payable represents the tax liability on purchases made from outside the state.
2. **Interstate Sale (Output):** - When the business sells these goods to another state (outside its own state): - Debit: Customer Account (Accounts Receivable) - Credit: Sales Account
The Output VAT/CST would typically be credited against the sales, but as of GST implementation, CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) are charged instead of CST for interstate transactions.
**Central Sales Tax (CST) under VAT:** - CST was a tax applicable on sales of goods in the course of interstate trade and commerce under the Central Sales Tax Act, 1956, before the implementation of GST in 2017. - CST was levied and collected by the Central Government but was administered by state governments. - Under VAT, CST was typically charged on interstate sales at the rate applicable in the selling state (where the seller is located).
However, with the introduction of GST (Goods and Services Tax) in 2017: - CST has been subsumed under GST. - Interstate transactions are now subject to IGST (Integrated Goods and Services Tax), which is a combination of CGST and SGST.
Therefore, under the current GST regime, businesses no longer account for CST separately; instead, they deal with IGST for interstate transactions.
CAclubindia
