Some GST on your purchases cannot be claimed back as input tax credit. This is called blocked GST. A composition dealer, for example, cannot claim credit on anything it buys. Smart Books lets you choose where this tax is recorded. This article shows you how to set that choice.
The two choices
In Settings you will find a section called GST you cannot claim. It offers two options:
- Capitalise into purchase cost (the default). The tax is added to the cost of what you bought. It is debited to the line's own purchase or stock ledger and becomes part of the item's stock value. This is what Smart Books has always done.
- Charge to an expense ledger. The tax is debited to one ledger that you name, as a cost of the period. Your purchases and stock value stay at the taxable amount, and the tax shows as its own line in the Profit & Loss report.
Pick the one your accountant uses. Composition dealers often prefer the expense option, so that the purchase figure in Smart Books matches the taxable value they file.
Before you start
If you want to use the expense option, create an indirect expense ledger first. A name such as "GST on purchases (not claimable)" keeps it easy to find in your Profit & Loss report.
Set the treatment
- Open Settings in your company.
- Find the section GST you cannot claim. It is at the top of the page.
- Select Capitalise into purchase cost or Charge to an expense ledger.
- If you chose the expense option, an Expense ledger box appears. Search for your indirect expense ledger and select it. Every blocked line's GST will be debited to this ledger.
- Select Save. You will see the message "Saved — it applies to vouchers posted from now on".
What happens to vouchers you already entered
Nothing moves. The new choice applies only to vouchers posted from now on. Vouchers already entered keep the treatment they were posted under. If an earlier voucher booked the GST as input tax credit, it stays that way until it is posted again.
For composition dealers, the CMP-08, GSTR-4 and GSTR-9A returns list the vouchers that do not match your current choice. They also offer to post those vouchers again when you ask. A link to CMP-08 is shown right under the options.
If something goes wrong
If you choose Charge to an expense ledger and leave the ledger empty, the Save button stays unavailable. If you try anyway, Smart Books tells you to choose the expense ledger the blocked GST should be charged to. Pick a ledger and save again.
If you switch back to Capitalise into purchase cost, you do not need a ledger. Any ledger chosen earlier is cleared when you save.
Tip: decide the treatment with your accountant before you enter many vouchers. That way you will not need to post older vouchers again.