Question

Required: Advise Newtech as to the GST implications for the following transactions:

An IT development firm, Newtech, which is registered for GST, undertakes the following transactions for the GST period (where GST applies, prices are GST inclusive):

• Purchases of fresh fruit from a major supermarket for the staff room: $1000.
• Purchase of a new laptop from a major department store: $2000.
• Payment of staff salaries: $300,000.
• Payment of water utilities bill: $500.
• Sales of services: $600,000.

subject principles of income tax

Answer 1

Answer :

• Purchases of fresh fruit from a major supermarket for the staff room: $1000.

Answer : Fresh fruits and vegetables have a 0% tax rate.

Staff welfare ......Dr. $1000

To cash/bank a/c....Cr. $1000

• Purchase of a new laptop from a major department store: $2000.

Answer : GST = 2000/118*18 = $305

CGST = $152.5

SGST = $152.5

18% GST is applicable on laptops/desktops and their accessories equal 9% CGST + 9% SGST. In case of inter-state transfer of these goods such as an ecommerce transaction, IGST will be applicable at 18% on these products and services.

Laptop A/c.....Dr. $1695

CGST A/c....Dr. $152.50

SGST a/c....dr. $152.50

To bank A/c Cr. $2000

• Payment of staff salaries: $300,000.

Answer : Not applicable

Staff salaries....Dr. $300,000

To bank A/c ...Cr. $300,000

• Payment of water utilities bill: $500.

Answer : GST is not charged on water bills. Water is exempt from GST.

Water bill expense a/c....Dr. $500

To bank a/c.....Cr. $500

• Sales of services: $600,000.

Answer :  GST rates on services comprising of 5%, 12%, 18% and 28% depending upon the kind of service provided.

Let us assume that rate of 12% is applicable in this case.

GST = 600,000/112*12 = $64,286

CGST = $32,143

SGST = $32,143

Bank a/c...dr. $600,000

To revenue from sale of service...cr. $535,714

To CGST....cr. $32,143

To SGST...cr. $32,143