| Question And Answer | |
|---|---|
| Subject: | Netting off Creditors with Debtors |
| Category: | GST |
| Querist: | kollipara sundaraiah |
| Answered by: | Law Intern |
| Tags: | CGST, Ind AS |
| Date: | August 3, 2025 |
sir,
We Have Come To A Situation Where The Client Has Raised The GST Invoices And Purchased The Goods From The Same Party Which Was Reflecting As Purchase And Sales In One Side. On The Other Side, There Was No Cash/ Bank Transactions Involved For Such Purchases And Sales Made Whereas It Was Adjusted By A Journal By Netting Of Creditors With Debtors. Is It Allowed As Per The Accounting Standards? And In The Other Case, Creditor’s “A” Balance Of Rs. 1,00,000 Has Been Adjusted With The Debtors “B” By Posting A Journal Entry Which Impacts Understatement Of Assets And Liabilities By Rs. 1,00,000. “A” And “B” Are The Not The Same Person.
Under Ind AS 32, netting off creditors with debtors for the same party through a journal entry is allowed provided there is a legally enforceable right to set off and an intent to settle on a net basis.
For GST purposes, the full value of sales and purchases must be reported in GST returns, and netting off is permissible only for settlement purposes, not for reducing reported taxable values.
As regards netting off a creditor’s balance (Party A) with a debtor’s balance (Party B), where A and B are different persons, it is not allowed under Ind AS 32 unless there is a legally enforceable tripartite agreement that allows the client to offset the amounts.