Key points
- Every sale posts to sales and separate output CGST, SGST or IGST ledgers.
- Every purchase posts to input tax credit ledgers, kept separate by tax head.
- At month end, credit is set off against tax due in the order the law requires.
- Credit notes, reverse charge and blocked credits get their own treatment.
- Your CA still reviews: blocked credits, reversals and anything unusual.
The ledgers GST needs
| Ledger | What goes in it |
|---|---|
| Output CGST / SGST / IGST | Tax collected on your sales |
| Input CGST / SGST / IGST | Tax paid on purchases you can claim |
| Electronic credit ledger | Credit available on the GST portal |
| Electronic cash ledger | Cash deposited to pay GST |
| GST payable | What you owe after set-off |
| Reverse charge payable | Tax you pay on behalf of a supplier |
In manual accounting, someone creates these entries for every bill. In ERP, they are created from the bill itself.
What happens when you make a sale
Take a local sale of ₹10,000 at 18%. The ERP records ₹11,800 due from the customer, ₹10,000 as sales, and ₹900 each in output CGST and output SGST. For a sale to another state, it records ₹1,800 in output IGST instead. Nobody chooses the ledger; the place of supply decides it.
What happens when you buy
A purchase bill of ₹5,000 + ₹900 GST from a local supplier records ₹5,000 as purchases, ₹450 each in input CGST and SGST, and ₹5,900 due to the supplier. If the item is blocked for credit, such as food for staff, the tax is added to the expense instead.
The monthly set-off
At month end, input credit is used to pay output tax in a fixed order. IGST credit is used first, against IGST and then CGST and SGST. CGST credit can’t pay SGST, and SGST credit can’t pay CGST. Whatever is left is paid in cash.
| Step | Example |
|---|---|
| Output tax for the month | IGST ₹20,000, CGST ₹15,000, SGST ₹15,000 |
| Input credit available | IGST ₹25,000, CGST ₹6,000, SGST ₹6,000 |
| Use IGST credit | ₹20,000 against IGST, the remaining ₹5,000 against CGST |
| Use CGST and SGST credit | CGST ₹6,000 and SGST ₹6,000 |
| Cash to pay | CGST ₹4,000, SGST ₹9,000 |
An ERP that keeps the three heads separate shows this before you log in to the portal. See our GSTR-3B summary.
Special cases ERP handles
- Credit notes: reduce sales and output tax, linked to the original bill.
- Reverse charge: tax payable is recorded, and credit taken where allowed.
- Blocked credits: items under Section 17(5) don’t go to input credit.
- Unpaid suppliers: credit on bills unpaid after 180 days is flagged for reversal.
- Exempt sales: credit on common inputs used for exempt sales is flagged for reversal.
What your CA still checks
- Whether items are correctly marked as blocked or exempt.
- Reversals under the 180-day rule and for exempt supplies.
- Matching of input credit with GSTR-2B.
- Year-end adjustments and the annual return.
Automation removes typing and arithmetic. It doesn’t remove judgement, which is why a quick monthly review with your CA still matters. Read more in our input tax credit guide.
This post explains GST rules in simple words as we understand them on 28 Oct 2026. Rules and rates change, so please confirm with your CA or the official notifications before acting on it.