Accounts and Records under GST: Stay Compliant, Avoid Penalties
Greetings, Compliance Maestros!
Keeping track of accounts and records under GST might not be the most exciting part of business, but it’s definitely one of the most crucial! As per Section 35 of the CGST Act and Rule 56 to 58 of the CGST Rules, businesses must maintain proper records of their transactions, invoices, stock, and more. Miss a detail, and you could be staring at penalties or compliance headaches under Section 122. But don’t worry-we’ve got you covered! This guide simplifies everything, making GST record-keeping a breeze. Ready to stay compliant and stress-free? Let’s dive in!
Who Needs to Maintain Accounts and Records?
The responsibility of maintaining books of accounts under GST isn’t just limited to businesses-it extends to various entities involved in the supply chain. Let’s break it down:
➢ Registered Persons: The Primary Obligation
Section 35(1) of the CGST Act, 2017, mandates that every registered person must maintain proper accounts and records. But who qualifies as a registered person?
A registered person, as per Section 2(94) of the CGST Act, is someone registered under Section 25, but this excludes a person holding a Unique Identity Number (UIN) (such as diplomatic missions and certain international organizations).
This means:
o Businesses registered under Section 22 (turnover-based registration) or Section 24 (compulsory registration) must maintain records.
o Those who voluntarily register under Section 25(3), even if not legally required to, are also covered.
o Holders of UIN (such as UN agencies, foreign embassies, and certain notified entities) are not required to maintain GST records.
➢ Other Entities Required to Maintain Records
Apart from registered businesses, GST law also requires certain other person to keep records:
Owners or operators of storage facilities - If you run a warehouse, godown, or any place used to store goods, and stock movements (Section 35(2), Rule 58), irrespective of whether you are a registered person or not.
Transporters - If you transport goods, you must record details of consignments handled, irrespective of whether you are a registered person or not, of the consigner, consignee and other relevant details of the goods (Section 35(2), Rule 58).
Agents as mentioned under section 2(5) of the CGST Act, 2017 (Rule 56(11)).
Clearing & Forwarding (C&F) Agents (Rule 56(17)).
By imposing these record-keeping obligations, GST law ensures transparency, accountability, and better compliance, reducing tax evasion risks.
Where Should Records Be Maintained?
Maintaining accounts and records under GST isn’t just about keeping them; it’s about keeping them in the right place! Section 35 of the CGST Act, 2017 read with Rule 56(7) of the CGST Rules, lays down clear guidelines on where these records must be maintained.
1. The Principal Place of Business: The Default Location
Every registered person is required to keep their accounts and records at their principal place of business-which is simply the address or place of business mentioned as the principal place in their GST registration certificate (as per Section 2(89)).
This means your GST registration certificate decides where your official books and records should be stored.
2. Understanding 'Place of Business' Under GST
To determine where records should be maintained, we need to understand what qualifies as a place of business under Section 2(85) of the CGST Act. It includes:
The location where business is ordinarily carried on - Your main office or operational hub.
Warehouse or godown - Any place where goods are stored.
Locations from where goods/services are supplied or received - Such as retail stores, distribution centers, or service hubs.
Where books of accounts are maintained - If records are kept at a specific office, that location qualifies.
Where business is carried through an agent - If an agent manages transactions, their office could also be considered.
3. Additional Places of Business: Records at Every Location
What if your business operates from multiple locations-say, you have branches, warehouses, manufacturing units, or retail stores under the same GSTIN? The first proviso to Section 35(1) read with Rule 56(7) clarifies that records related to these additional locations must be maintained at each respective place.
Furthermore, as per Rule 56(10), if any business records, such as books of account or registers or any document belonging to the registered person, are found at a location not mentioned in the registration certificate, the authorities may presume that the registered person maintains such accounts. This can lead to scrutiny, potential penalties, and tax demands unless the taxpayer provides evidence to refute this presumption. To avoid unnecessary compliance risks, businesses must ensure that all official records are maintained only at the registered places of business.
Therefore, a registered person shall keep and maintain the books of accounts at the principal place of business and every additional place(s) of business mentioned in his certificate of registration.
What Records Must Be Maintained Under GST?
1. A combined reading of Section 35 of the CGST Act, 2017, and Rule 56 of the CGST Rules, 2017, indicates that the registered person must maintain accounts, records, and other relevant documents, by whatever name called, across the following broad segments:
a) production or manufacture of goods
b) Inward & Outward Supplies of Goods and services
c) Accounts of stock such as opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample
d) Proper bifurcation of quantity and value of the stock records for raw materials, finished goods, scrap, wastages etc.
e) An account of the input tax credit, its availment and utilization.
f) Output tax payable and paid
g) Records relating to imports or exports of goods or services
h) Records related to supplies under reverse charge, either as a supplier or recipient, as the case may be
i) An account of the advances received, paid and adjustments made thereto
j) An account of tax payable, either under forward charge or reverse charge, tax collected and tax paid.
k) Registers for tax invoices, debit notes and credit notes.
l) Registers for the delivery challans issued or received.
m) Name and addresses of the suppliers and the customers.
n) Complete addresses of all the storage facilities, including of the goods stored during transit
o) Particulars of the goods stored at each storage facility.
Note- As per Rule 56(7), if goods are stored at a location other than the ones declared under point (o) and without valid documentation, the proper officer shall assess the tax liability on such goods as if they had been supplied by the registered person.
2. Additional Records for Specific Businesses
Beyond regular trading activities, the nature of business operations further determines the specific record-keeping requirements. The following categories of registered persons must maintain additional records as applicable:
a) Agent [Rule 56(11)]An agent must maintain records of their own business activities and additional details related to transactions carried out on behalf of the principal, including:
Authorization from the principal for receiving or supplying goods/services.
Accounts furnished to each principal.
Description, quantity, and value of goods/services received.
Description, quantity, and value of goods/services supplied.
Tax paid on receipts or supplies.
A registered person being manufacturer must maintain monthly production records in addition to regular business records, including:
Quantitative details of raw materials or services used.
Quantitative details of goods manufactured.
Quantitative details of waste and by-products generated.
A registered person engaged in providing services must maintain:
Quantitative details of goods used to provide services.
Details of input services utilized.
Details of services supplied.
A registered person being works contractor must maintain separate accounts for works contract and records for each contract, covering:
Name and address of the contract allotter.
Description, quantity, and value of goods/services received for execution.
Description, quantity, and value of goods/services used for execution.
Details of payments received.
Name and address of suppliers from whom goods or services were received.
Any person engaged in storage activities, whether registered or not, must maintain the following records with respect to the period for which particular goods remain in the warehouse:
Dispatch, movement, receipt, and disposal of goods.
Identification of stored goods by owner and item-wise.
Facility for physical verification or inspection by authorities on demand.
Transporters must maintain records at each branch, including:
Details of goods transported and delivered.
Details of goods in transit.
GSTIN of registered consignors and consignees.
Any person responsible for handling goods as a carrier or clearing and forwarding agent for delivery or dispatch thereof to a recipient on behalf of a registered person must keep accurate records of the goods in their custody must maintain accurate records of all goods in their custody. These records should correctly reflect the goods handled and must be made available to the proper officer whenever required.
Maintaining proper records is crucial for GST compliance and helps businesses avoid penalties or disputes with tax authorities.
3. Further, the documents for recording of the day-to-day transactions based on which accounts and records are made have been prescribed under Chapter VII (‘TAX INVOICE, CREDIT AND DEBIT NOTES”) of the CGST Act, 2017, these are :
Tax invoices
Revised tax invoices
Bill of supply
Credit notes
Debit notes
Receipt vouchers
Payment vouchers
Refund vouchers
Delivery challans
Self-generated invoices
Rule 58: Record-Keeping Obligations for Warehouse Operators and Transporters
Section 35(2) of the CGST Act read with Rule 58, mandates specific record-keeping requirements for owners or operators of godowns, warehouses, and transporters handling goods. These provisions ensure accountability in the storage and movement of goods under GST.
Key Requirements:
1. Enrollment for Unregistered Entities (Sub-rule 1)- Any person required to maintain records under Section 35(2), if not already registered under GST, must electronically submit their business details in FORM GST ENR-01 on the common portal. Upon successful validation, a unique enrollment number is assigned.
2. Unique Common Enrollment for Transporters (Sub-rule 2) - A transporter operating in multiple States or Union Territories under the same PAN can obtain a single common enrollment number by submitting FORM GST ENR-02. Once issued, this unique number replaces the use of individual GSTINs for compliance under Chapter XVI of the CGST Rules (“Liability to pay in certain cases”)
3. State-Wide Recognition (Sub-rule 3) - A person enrolled under sub-rule (1) in one State or Union Territory is deemed to be enrolled across all locations where it operates.
4. Updating Business Details (Sub-rule 4)- Any changes in the details furnished during enrollment under sub-rule (1) must be updated electronically in FORM GST ENR-01 to maintain accurate records.
These provisions ensure proper monitoring of goods storage and transportation, reducing the risk of tax evasion while simplifying compliance for logistics operators.
Concept of True and Correct Accounts
A detailed analysis of Section 35(1) of the CGST Act, 2017, and Rule 56 of the CGST Rules, 2017, reveals that a registered person must maintain a ‘true and correct’ account of records. This phrase underscores the importance of accuracy and authenticity in record-keeping.
Meaning of "True and Correct" in GST Records
It refers to the factual accuracy of the records, meaning they must reflect actual transactions without misrepresentation, omission, or falsification. Also, should ensure compliance with applicable legal provisions, meaning the records should be maintained properly and reflect tax liabilities, input credits, and other details correctly.
Thus, "true and correct" requires that the records:
✓ Accurately represent all business transactions.
✓ Match with supporting documents such as invoices, purchase orders, and bank statements.
✓ Comply with GST provisions, ensuring no discrepancies in tax reporting.
✓ Be free from errors, manipulations, or misstatements that could mislead tax authorities.
How Should Records Be Maintained?
A registered person can maintain accounts and records either manually or in electronic form (e-form).
A. Manual Records
✓ Each volume of the books of accounts must be serially numbered.
✓ Should be kept at every related place of business mentioned in the certificate of registration.
B. Electronic Records
When records are maintained electronically, the following conditions must be met as per the second proviso of Section 35(1), read with Rule 56(15) and Rule 57:
✓ Authentication - Records must be duly authenticated using the digital signature of the authorized signatory.
✓ Backup Facility - A proper backup system must be in place to restore data in case of loss.
✓ Availability for Verification - Upon demand by tax authorities, records must be provided duly authenticated by him, in hard copy or electronically readable format.
✓ Access Details - Upon demand by tax authorities, the registered person must provide passwords and necessary credentials to access the electronic records, along with a printed sample copy of stored data.
Further, all forms of electronic data stored are covered under GST record-keeping requirements. Tax authorities have the right to verify these records during an audit or investigation.
Restrictions on Alterations in RecordsAs per Rule 56(8), any modifications in records must follow these guidelines:
✓ No Erasures or Overwriting - Entries cannot be erased, effaced, or overwritten.
✓ Corrections with Attestation - Any incorrect entry (except clerical errors) must be scored out under attestation, and the correct entry must be recorded.
✓ Logs of Changes in E-Records - A log of all changes and deletions must be maintained for electronic records.
Retention of Records
As per Section 36 of the CGST Act, 2017, a registered person must retain books of accounts and other records for a period of 6 years (72 months).
How is the Retention Period Calculated?
The 6-year period is counted from the due date for filing the annual return for the relevant financial year.
Since the annual return is generally due within 9 months after the financial year ends, the total effective retention period comes to 81 months (72 months + 9 months) from the end of the financial year.
If a registered person is involved in any appeal, revision, legal proceedings, or investigation under Chapter XIX of the CGST Act, records must be retained for the longer of the following:
✓ 72 months from the due date for furnishing the annual return, OR
✓ 1 year from the final disposal of the appeal, revision, or investigation.
Why is the Retention Period Important?The retention period serves as a limitation for tax authorities to initiate actions or proceedings against a registered person. Once this period expires, the registered person is no longer required to produce records related to that financial year.
Consequences of Non-Maintenance
Failure to maintain proper records can lead to serious consequences:
Penalties:
Under Section 122(1) of the CGST Act, a penalty of Rs. 10,000 or an amount equivalent to the tax evaded or ITC wrongly availed, whichever is higher, may be imposed.
Presumption of Supply & Tax Liability: [Sec 35(6)]
If a registered person fails to account for goods or services as required under the law, the tax authorities may treat such unaccounted goods or services as if they were supplied by that person. Consequently, tax liability will be determined accordingly, and the provisions of Section 73 or Section 74 (or Section 74A, where applicable) will apply to assess and recover the tax.
Best Practices for GST Record-Keeping
1. Use Digital Record-KeepingWhile manual records are allowed, maintaining GST records electronically is highly recommended. Digital records:
2. Maintain a Clear Document Trail☑Reduce errors and improve accuracy.
☑Allow for easy retrieval during audits.
☑Ensure better backup and security.
Every GST transaction should have a corresponding document, such as a tax invoice, credit note, debit note, or e-way bill. Ensure:
3. Reconcile GST Returns Regularly☑All invoices are sequentially numbered.
☑Supporting documents (purchase orders, bank statements) match recorded transactions.
☑Adjustments like discounts and reversals are properly documented.
Periodic reconciliation of books with GST returns (GSTR-1, GSTR-3B, and GSTR-2B) helps:
4. Track Input Tax Credit (ITC) Diligently☑Identify mismatches in ITC claims.
☑Avoid notices due to discrepancies.
☑Ensure timely corrections before filing annual returns.
Keep a separate ledger for ITC, ensuring:
5. Ensure Location-Wise Record Maintenance☑Only eligible credits are claimed.
☑Proper linking of ITC to tax invoices and supplier details.
☑Reconciliation of ITC with GSTR-2B to prevent claim mismatches.
For businesses with multiple locations:
6. Follow Proper Storage and Retention Rules☑Maintain records at each place of business.
☑Keep proper stock registers at warehouses.
☑Ensure centralized access to records for easy compliance.
7. Regular Internal Audits☑Store records securely for at least six years (or longer if under investigation).
☑Keep backup copies of digital records.
☑Ensure all modifications are logged and traceable.
Conduct periodic internal checks to:
☑Identify errors before tax authorities do.
☑Validate compliance with GST rules.
☑Ensure all transactions are properly accounted for.
By following these best practices, businesses can maintain GST compliance while minimizing the risk of disputes, audits, and penalties. However, these are not exhaustive requirements, and businesses should assess their specific compliance needs based on the nature of their operations and regulatory changes.
Conclusion
Maintaining accurate accounts and records under GST isn’t just a legal requirement-it’s the foundation of seamless compliance, efficient tax administration, and risk mitigation. The provisions under Section 35 of the CGST Act and Rule 56 to 58 of the CGST Rules lay down clear guidelines on who must maintain records, what needs to be recorded, where they should be kept, and for how long. From registered businesses and transporters to warehouse operators and agents, GST compliance hinges on keeping true and correct records.
Beyond avoiding penalties, meticulous record-keeping ensures transparency, facilitates audits, and helps businesses defend their claims in disputes. Whether maintained manually or electronically, records should be updated, authenticated, and easily accessible when required by tax authorities. Ultimately, a well-maintained set of accounts is not just a statutory obligation but a strategic tool for businesses to navigate GST compliance with confidence.
Keep your accounts in check today to dodge compliance headaches tomorrow! Stay organized, stay worry-free!
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.