Hello guys, as we all know that Input Tax credit adjustment method has been changed from FEB-2019. It means old method of Input credit adjustment you were following till Jan-2019 return is now changed.
If you wish to know about new concept of GST ITC Method click here

This article covers concept of Adjustment entry in Tally according to old and NEW ITC Adjustment under GST.
Here we will understand the concept with simple illustration
Example: Following balance appears in Books of GST AND TALLY WALA for the month of Feb 2019. Find the tax liability for the month according to old and new ITC adjustment method.

Tax Head
Input Tax Balance
Output Tax Balance
CGST
20,000
30,000
SGST
20,000
30,000
IGST
25,000
12,000
Total
65,000
72,000

ITC Adjustment Entry According to OLD Method
(We will be focusing more on new method hence old method will not be explained in detail)
According to old method first steps is that “All Input Credit Balance should be adjusted to output balance under same head. It means Input CGST will be adjusted to output CGST and similarly for other as well

1stStep :- Input balance adjustment to output adjustment balance
Tax Head
Output Tax
Input Tax
Tax Balance
CGST
30,000
20,000
10,000
SGST
30,000
20,000
10,000
IGST
12,000
25,000
-13,000
Total
72,000
65,000
7,000

Hint: While adjusting balance we need to consider the balance which ever is lower from output and Input balance.
From above table after adjusting Input balance there are still liability under CGST and SGST as Rs 10,000 each.
Where as under head of IGST liability is less then Input balance hence Tax balance is negative as 13,000 which shows that there is further Input Tax Crediting Adjustment available.
Lets see the above adjustment entry in Tally
Entry 1 : Adjustment of Input and Output balance
Gateway of Tally>> Accounting Voucher >>Journal >> (If you wish to select stat adjustment then you can but it is not needed as it will not hit the report)
CLICK HERE TO WATCH VIDEO ON GST ITC ADJSUTMENT


After saving above entry following balances remains
CGST = 10,000 PAYABLE   SGST=10,000 PAYABLE
IGST  = 13,000 Input Balance


2nd Steps under Old Method :Now once Input and output balance has been adjusted then we need to check the ITC balance of IGST which can be adjusted towards liability of CGST first and then SGST liability if any balance.
Journal Entry :   Output CGST……… Dr  10,000
                           Output SGST……….Dr    3,000
                                  To Input IGST                       13,000


After above adjustment you to get to know liability of 7,000 need to be paid under head of SGST.

So above method explained was old method. Now we check new method ITC adjustment method according to new method. Before moving according to new method we came to know there are technical issue as
i) Some of Tally users maintain GST ledger as Input and Output Method
ii) Some of Tally users maintain Simple CGST/SGST and IGST
We will see entry of ITC adjustment in Tally according to new ITC adjustment method according to both scenario.
Scenario 1: Where Tally user is following Input and Output GST Ledger method.
Lets continue same above example
Tax Head
Input Tax Balance
Output Tax Balance
CGST
20,000
30,000
SGST
20,000
30,000
IGST
25,000
12,000
Total
65,000
72,000

According to new method of ITC Adjustment Input balance of IGST should be used first. Input IGST should be used in following sequence
1st With Output IGST   2nd With Output CGST 3rd With Output SGST
(Sequence will be following only if any balance remained under Input IGST)
Starting Balance of Input IGST = 25,000
1st Steps towards IGST Adjustment
Input IGST Balance
25,000
(Starting Balance IGST)
Less : Output IGST
12,000
First IGST
Balance Input IGST
13,000
Balance IGST Input
Less : Output CGST
13,000
Second CGST
Balance Input CGST
0.00
Balance IGST Input
Less: Output SGST
0.00
IGST Input Zero hence it is Zero
Balance
0.00
Balance IGST Input

According to above table we can see IGST Input is completely exhausted in above sequence.
While adjusting output CGST there was payable amount 30,000 but only 13,000 output balance was adjusted because we had only 13,000 Input Credit balance under IGST.
So according to above 1st adjustment we need to pass following Journal Entry in Tally


2nd Steps towards adjustment
After above adjustment we need to adjust rest Input credit balance towards output liablity.
Now we have following balance after 1st step
Tax Head
Output Balance
Input Balance
CGST
17,000
20,000
SGST
30,000
20,000
IGST
0.00
0.00
Total
47,000
40,000

Now we need to pass Journal entry where will adjust Input CGST with Output CGST and similarly to SGST.
(Note : CGST and SGST can not be adjusted with each other)

Tax Head
Output Tax
Input Tax
Balance
CGST
17,000
20,000
-3,000
SGST
30,000
20,000
10,000
IGST
0.00
0.00
0.00

Now from above table you can view that CGST output is less then Input hence there is further credit balance under head of CGST Rs3,000 but this Input credit balance can not be adjusted against SGST liability.
Now Entry should be as



Now you can see liability is 10,000 under SGST and Input CGST 3,000 which can not be used to setoff SGST Liability.

Scenario 2 where Tally user has maintain simple CGST/SGST & IGST Ledger
This method of adjustment entry is applicable only when Input IGST is higher than output IGST
This method is going to be quite tough for Tally users as simple GST method will show net balance after inter adjustment (output and Input). So in this situation Tally user can follow input and out CGST ledger method from Feb-2019 and pass the entry according to scenario 1
OR
Tally user can keep simple CGST, SGST & IGST Method and pass the entry.
Before moving ahead we should take a note of following points
  1. Under this scenario we need to find out Input and Output balance under each GST
  2. Under this method Tally ledgers will show only Net Balance.
  3. To know Input and Output Balance you should either check it from balance sheet or from GSTR3B Report (Image shown below)
  4. If you will see the Input and Output balance it always suggestable to check it from GSTR3B.
  5. You need to check Net balance under GSTRB for each tax type should be matching with Ledger balance under each Tax type.
  6. If Ledger balance is not matching with GSTR3B Tax balance it means few of entry is not reflecting under GST, please check the error and correct it.
  7. In case if you will check Input and Output balance from balance sheet Debit Balance will show the GST amount on Purchase plus Credit Note where as Credit Balance will show GST on Sales amount plus Debit Note.
  8. Hence it is suggestable to view the balance from GSTR3B only.

To view GST Balance from balance sheet follow
Gateway of Tally>>Balance >> Current Liabilities>> Duties and Taxes


You can see that above amount reflecting NET BLANCE (Output Less Input Amt)
In same above report you can press F12 and enable the first two option
(Show opening balance and Show transactions as yes)


You can see above debit side is Input balance and credit balance is output balance.

Same can be viewed under GST3B Report as below


From above GSTR3B you can get Output and Input balance under each head as below
Tax Head
Output Tax
Input Tax
IGST
12,000
25,000
CGST
30,000
20,000
SGST
30,000
20,000


Now you need to create following Ledgers
1-    Input CGST
2-    Input SGST
(No need to create Input IGST ledger)
After creating above ledgers you need to separate Input amount from CGST and SGST by passing below Journal entry


Above entry shows that Input amount from net balance has been separated to proceed further ITC Adjustment entry according to new method.
(Input amount has been found from GSTR3B Report)

Now you can see below amount


From above report you need to adjust balance Input Credit Balance of IGST towards liability of CGST
(Sequence of Adjustment has been explained under Scenario 1)

Entry 2- In this entry we need to pass IGST adjustment entry with CGST



Entry 3- Now after above entry we can use balance Input CGST & Input SGST balance towards output CGST & SGST amount.



Now check out the report as below



Now you can see balance payable amount under SGST =10000 INR and Input CGST =3000
Input CGST can not be adjusted towards liability of SGST.

You can also check out my video on youtube click on link
https://youtu.be/46i3RNrAU9Q

Before making payment for each month you can prepare excel file for each month to knowabout net balance under GST head.
Format of Working in excel

 1. To Download Excel - Click Here
2. To Download the PDF FILE - Click Here