Glossary
The words you meet in GST, accounts, stock and payroll, each explained in plain words: what it means for your business, how it works, and where it shows up in your day.
GST
Returns, invoices, codes and credits under India’s Goods and Services Tax
- Bill of supply A bill of supply is the document a GST-registered business issues instead of a tax invoice when no GST is charged, that is, for exempt goods or services or when the seller is under the composition scheme. It shows the sale but no tax, and the buyer cannot claim input tax credit on it.
- CGST · Central Goods and Services Tax CGST is the central government's share of GST on a sale within a state. It is charged together with SGST at an equal rate, so an 18% sale carries 9% CGST and 9% SGST, and it is paid to the centre.
- Composition scheme The composition scheme lets a small business pay GST at a low fixed rate on its turnover, 1% for traders and manufacturers, with a quarterly payment and one annual return. In exchange it cannot charge GST to customers, claim input tax credit or sell to other states.
- Credit note A credit note is the document a seller issues to reduce the value or the GST of an invoice already issued, for example when goods are returned, the price is reduced or the tax was overcharged. It lowers what the customer owes and, if declared in time, the seller's GST liability.
- Debit note Under GST, a debit note is the document a seller issues to increase the value or the tax of an invoice already issued, for example when the price was undercharged. In everyday trade the same name is also used for the note a buyer sends a supplier when returning goods.
- Delivery challan A delivery challan is the document that travels with goods when they are moved without a tax invoice, for example to a job worker, on approval, or between your own locations. It lists the goods and their value so the movement is legal, and it is not a sale.
- E-invoice · Electronic invoice reported to the Invoice Registration Portal An e-invoice is a GST invoice that you report to the Invoice Registration Portal (IRP), which validates it and returns an IRN and a signed QR code. It is mandatory for business-to-business invoices once your aggregate turnover in any year since 2017-18 exceeds ₹5 crore.
- E-way bill · Electronic way bill An e-way bill is an electronic document you generate on the GST e-way bill portal before moving goods worth more than ₹50,000 in one consignment. It records the invoice, the goods and the vehicle, and it must travel with the goods.
- GSTIN · Goods and Services Tax Identification Number A GSTIN is the 15-character number given to every business registered under GST, one for each state in which it is registered. It is made up of the state code, the business's PAN, an entity number, the letter Z and a check character.
- GSTR-1 · Statement of outward supplies GSTR-1 is the GST return in which a registered business reports its sales for a month or quarter, invoice by invoice for business customers and in summary for consumers. It is due on the 11th of the next month, or the 13th after the quarter for businesses in the QRMP scheme.
- GSTR-1A · Amendment of outward supplies for the current tax period GSTR-1A is an optional form on the GST portal for adding or correcting sales invoices of a tax period after GSTR-1 has been filed and before GSTR-3B is filed for the same period. The corrected figures then flow into GSTR-3B.
- GSTR-2A · Auto-drafted statement of inward supplies GSTR-2A is a view-only statement on the GST portal that lists the purchases your vendors have reported against your GSTIN. It keeps changing as vendors file or amend their returns, unlike GSTR-2B, which is fixed for each period.
- GSTR-2B · Auto-drafted input tax credit statement GSTR-2B is the monthly statement on the GST portal that shows the input tax credit available to you from your vendors' filed invoices. It is generated on the 14th of the next month and is the basis for the credit you claim in GSTR-3B.
- GSTR-3B · Summary return of outward supplies, input tax credit and tax paid GSTR-3B is the GST return in which you declare your sales, input tax credit and net tax for the period, and pay that tax. It is due on the 20th of the next month, or on the 22nd or 24th after the quarter (by state) under the QRMP scheme.
- GSTR-9 · GST annual return GSTR-9 is the annual GST return. It brings together a regular taxpayer's sales, purchases, input tax credit and tax paid for the whole financial year, as reported in GSTR-1 and GSTR-3B, and is due by 31 December after the year ends. It is optional if your turnover is up to ₹2 crore.
- HSN code · Harmonized System of Nomenclature code An HSN code is the number that classifies goods under GST, based on the international Harmonized System, and it decides the GST rate. Invoices must show at least 4 digits if your turnover is up to ₹5 crore and 6 digits above ₹5 crore.
- IGST · Integrated Goods and Services Tax IGST is the GST charged on a sale from one state to another, on imports, and on supplies to SEZ units. It is charged at the full rate, for example 18%, collected by the centre, and the state's share is passed to the state where the supply is consumed.
- IMS · Invoice Management System The Invoice Management System (IMS) is a screen on the GST portal where you accept, reject or keep pending each invoice your suppliers have reported against your GSTIN. Only what you accept, or leave untouched, flows into your GSTR-2B as input tax credit.
- IRN · Invoice Reference Number An IRN is the unique 64-character reference the Invoice Registration Portal gives an e-invoice when it accepts it. An e-invoice without an IRN is not a valid invoice, and your customer cannot claim input tax credit on it.
- IRP · Invoice Registration Portal The IRP is the government-authorised portal that validates your e-invoices and returns the IRN and signed QR code. It then passes the details to the GST portal and the e-way bill system. NIC runs the main IRP, and GSTN has authorised private IRPs as well.
- ISD · Input Service Distributor An Input Service Distributor (ISD) is a separate GST registration that an office of a business takes to pass on the input tax credit on services it receives for its branches in other states. Since 1 April 2025 this route is compulsory for such common services.
- ITC · Input tax credit Input tax credit (ITC) is the GST you pay on business purchases that you can set off against the GST you collect on sales, so you pay only the difference. You can claim it only on eligible purchases whose invoices appear in your GSTR-2B.
- LUT · Letter of Undertaking A Letter of Undertaking (LUT) is a declaration an exporter files on the GST portal in Form GST RFD-11 so that goods or services can be exported, or supplied to an SEZ, without paying IGST. It is valid for one financial year and must be filed again each year.
- Place of supply The place of supply is the state where GST law treats a sale as taking place. It decides the tax on the invoice. When it is the seller's own state, CGST and SGST are charged. When it is another state, IGST is charged, and the tax goes to the state where the goods or services are used.
- Proforma invoice A proforma invoice is a preliminary bill sent before the sale is final, showing the goods or services, the price and the GST the customer will be charged. It is an offer or a request for advance payment, not a tax invoice, so it creates no GST liability and no input tax credit.
- QRMP scheme · Quarterly Return Monthly Payment scheme The QRMP scheme lets a business with aggregate turnover up to ₹5 crore file GSTR-1 and GSTR-3B once a quarter instead of every month. Tax is still paid monthly, by the 25th, through challan PMT-06.
- Reverse charge · Reverse charge mechanism (RCM) Under reverse charge, you as the buyer pay the GST on a purchase directly to the government, instead of the supplier collecting it from you. It applies to notified goods and services, such as legal fees from an advocate, and to services imported from abroad.
- SAC code · Services Accounting Code A SAC code is the six-digit number that classifies a service under GST and decides its rate. Every SAC starts with 99, and you show it on invoices and in your GSTR-1 under the same rules as HSN codes for goods.
- SGST · State Goods and Services Tax SGST is the state government's share of GST on a sale within a state, charged at the same rate as CGST and paid to that state. In union territories without their own legislature, UTGST is charged instead of SGST.
- Shipping bill A shipping bill is the customs document an exporter files for goods leaving India by sea or air. Its number, date and port code must be reported against each export invoice in table 6A of GSTR-1, and for exports with payment of IGST it also serves as the refund claim.
- Tax invoice A tax invoice is the bill a GST-registered business issues for a taxable sale of goods or services. It shows the GSTIN of the seller and buyer, the HSN or SAC code, the taxable value and the GST charged, and it is the document on which the buyer claims input tax credit.
- TCS · Tax Collected at Source Tax collected at source (TCS) is tax a seller, or an e-commerce operator, collects from the other side of a sale and pays to the government on their behalf. India has two kinds, one under the Income-tax Act on specified goods and one under GST on sales made through e-commerce platforms.
Accounting
Statements, ledgers and the money owed to you and by you
- Accounts payable Accounts payable is the money your business owes vendors for goods and services received on credit. It appears in your balance sheet as trade payables (sundry creditors), and paying on time protects your input tax credit, your tax deductions and your standing with vendors.
- Accounts receivable Accounts receivable is the money customers owe you for goods or services already supplied on credit. It sits in your balance sheet as trade receivables (sundry debtors), and collecting it on time is what turns your sales into cash.
- Advance receipt An advance receipt is money a customer pays you before you have supplied the goods or services or raised the invoice. In your books it is a liability until the sale happens, and under GST an advance for services is taxed when you receive it, while an advance for goods is not.
- Ageing report · Receivables and payables ageing An ageing report lists what each customer owes you, or what you owe each vendor, split by how long it has been due, usually not due, 1 to 30 days, 31 to 60, 61 to 90 and over 90 days. It shows at a glance whom to follow up first and how much money is stuck.
- Balance sheet A balance sheet shows what your business owns (assets), what it owes (liabilities) and what belongs to the owners (capital and reserves) on one date. Assets always equal liabilities plus capital, and banks, investors and your CA read it to judge financial strength.
- Bank reconciliation · Bank reconciliation statement (BRS) Bank reconciliation is matching the bank account in your books with the bank's own statement, entry by entry, and explaining every difference, such as cheques not yet cleared, bank charges and receipts you have not recorded. The result is a bank reconciliation statement.
- Cash flow statement A cash flow statement shows how cash came into and went out of your business over a period, split into operating, investing and financing activities. It explains why your bank balance changed, and why a profitable business can still run short of cash.
- Contra entry A contra entry records money moving between your own cash and bank accounts, such as cash deposited into the bank, cash withdrawn, or a transfer from one bank account to another. It changes where the money is, not how much you have.
- DPO · Days payable outstanding Days payable outstanding (DPO) is the average number of days your business takes to pay its vendors. It is trade payables divided by purchases (or cost of goods sold), multiplied by the days in the period, and shows how much of your working capital vendors finance.
- DSO · Days sales outstanding Days sales outstanding (DSO) is the average number of days your customers take to pay you after a sale. It is receivables divided by credit sales, multiplied by the days in the period; a lower DSO means your sales turn into cash faster.
- Journal entry A journal entry records a transaction in the books as debits and credits of equal amount. In practice a journal voucher is used for entries that involve no cash or bank movement, such as provisions, depreciation, adjustments between ledgers and corrections.
- Ledger A ledger is the record of every entry that affects one account in your books, such as a customer, a vendor, your bank, sales or rent, with a running balance. Together the ledgers hold all your transactions, sorted by what they are about.
- P&L · Profit and loss account A profit and loss account (P&L) shows your income and expenses for a period, such as a month or a financial year, and the profit or loss that results. It tells you whether the business actually earned money, which a bank balance alone cannot.
- Trial balance A trial balance lists every ledger in your books with its debit or credit balance on a date. Since each entry has equal debits and credits, the two totals must agree, which makes it the first check before your P&L and balance sheet are prepared.
Stock and manufacturing
Items, warehouses, buying, production and how much to keep
- BOM · Bill of materials A bill of materials (BOM) is the list of raw materials, components and quantities needed to make one unit or one batch of a finished product. It is the basis for costing the product, planning what to buy and issuing the right material to production.
- FIFO and LIFO · First in, first out and last in, first out FIFO (first in, first out) and LIFO (last in, first out) are methods of valuing the stock you sell and the stock you hold. FIFO assumes the oldest stock goes out first; LIFO assumes the newest does. In India, LIFO is not permitted for inventory valuation under AS 2 and Ind AS 2.
- GRN · Goods receipt note A GRN (goods receipt note) is the record you make when goods arrive from a vendor, showing what was actually received, in what quantity and condition, against the purchase order. It brings the goods into stock and is what you check the vendor's bill against.
- MES · Manufacturing execution system An MES (manufacturing execution system) is software that tracks and controls production on the shop floor as it happens: which job runs on which machine, who is working on it, how many good and rejected pieces come out, and why a machine stopped.
- MRP · Maximum Retail Price, or Material Requirements Planning In India, MRP usually means Maximum Retail Price, the highest price, including all taxes, at which a packaged product may be sold to a consumer. In manufacturing, MRP also means Material Requirements Planning, which works out what materials to buy or make, and when.
- OEE · Overall equipment effectiveness OEE (overall equipment effectiveness) measures how much of a machine's planned production time is truly productive. It multiplies three ratios, availability, performance and quality, so an OEE of 60% means only 60% of planned time made good parts at full speed.
- PO · Purchase order A purchase order (PO) is the document you send a vendor to order goods or services, stating the items, quantities, prices, delivery date and payment terms. Once the vendor accepts it, it is the agreed basis for checking the delivery and the vendor's bill.
- Reorder point The reorder point is the stock level at which you should place a new purchase order, so that fresh stock arrives before you run out. It is usually your average daily sales multiplied by the vendor's lead time in days, plus a safety stock.
- Safety stock Safety stock is the extra quantity of an item you keep to cover demand that is higher than expected or deliveries that arrive late. It is the buffer that prevents a stock-out while you wait for your next order, at the cost of money tied up in stock.
- SKU · Stock keeping unit A SKU (stock keeping unit) is a unique code you give each distinct product you stock and sell, down to its size, colour or pack. It lets your team identify, count and reorder exactly the right item, where a product name alone can be ambiguous.
- Three-way matching Three-way matching is the check you run before paying a vendor: the bill is compared with the purchase order (what you agreed to buy, at what price) and the goods receipt note (what actually arrived). You pay only for goods that were ordered, received and billed at the agreed rate.
- UOM · Unit of measure A UOM (unit of measure) is the unit in which you count an item, such as pieces, boxes, kilograms or litres. Setting units correctly, with conversions like 1 box = 12 pieces, keeps your stock, prices and GST returns consistent however you buy and sell.
- WMS · Warehouse management system A WMS (warehouse management system) is software that runs the work inside a warehouse: where each item sits down to the rack or bin, and how goods are received, put away, picked, packed and dispatched. It goes deeper than a stock register, which records quantities.
Payroll and HR
Salaries, statutory deductions and employee tax forms
- CTC · Cost to company CTC is the total yearly cost of an employee to the employer: gross salary plus the employer's PF and ESI contributions, gratuity, bonus and other benefits. Take-home pay is lower, because employee deductions and employer costs never reach the salary account.
- EPS · Employees' Pension Scheme EPS is the pension scheme run by EPFO. Out of the employer's 12% PF contribution, 8.33% of the employee's wages up to the wage ceiling goes to EPS, and the employee earns a monthly pension from age 58 after at least 10 years of service.
- ESI · Employees' State Insurance ESI is the health insurance and cash benefit scheme run by ESIC for employees earning up to ₹21,000 a month. Each month the employer pays 3.25% and the employee 0.75% of the employee's wages.
- Form 12BB · Statement of claims by an employee for deduction of tax Form 12BB is the statement of rent, home loan interest and tax-saving investments an employee gives the employer, so TDS on salary is correct. From 01-04-2026 it is replaced by Form 124 under the Income-tax Rules, 2026.
- Form 16 · Certificate of tax deducted at source on salary Form 16 is the certificate an employer gives each employee showing the salary paid and the tax deducted from it in a year. From tax year 2026-27, under the Income-tax Act, 2025, it is replaced by Form 130, issued by 15 June after the tax year.
- Gratuity Gratuity is a lump sum an employer pays on an employee's exit, retirement, death or disablement: 15 days' wages for each completed year of service, up to ₹20 lakh. It needs five years of service, or one year for fixed-term employees under the labour codes.
- HRA · House rent allowance HRA is the part of salary paid towards an employee's rent. Under the old tax regime part of it is tax-free, the lowest of HRA received, rent minus 10% of salary, and 50% of salary in eight large cities (40% elsewhere). Under the new regime it is fully taxable.
- PF · Employees' Provident Fund Provident Fund (PF) is the retirement savings scheme run by EPFO, into which the employer and the employee each pay 12% of the employee's wages every month. It is compulsory for establishments with 20 or more employees, for staff earning up to the wage ceiling.
- Professional tax Professional tax is a state tax on employment, trades and professions, which employers deduct from salaries in the states that levy it. The Constitution caps it at ₹2,500 a year per person, and each state sets its own slabs, due dates and returns.
- TDS on salary · Tax deducted at source on salary TDS on salary is the income tax an employer deducts from each month's salary and deposits with the government, based on the employee's estimated tax for the year. It is reported in quarterly returns and certified to the employee after the year.
- UAN · Universal Account Number A UAN is the 12-digit number that EPFO gives each PF member, and it stays the same for life across every job. Each employer's PF account for the employee is linked to it, so their savings and service move with them.
Business software
The terms software for businesses is sold with
- Audit trail An audit trail is a permanent record of every entry in your books and every change to it, showing who made it, when, and what it was before and after. Under the Companies (Accounts) Rules, companies must use accounting software that keeps such an edit log, in force from 01-04-2023.
- CRM · Customer relationship management CRM (customer relationship management) is how a business keeps track of its leads, customers and every conversation with them, usually in software. It makes sure enquiries are followed up, quotations do not go cold and anyone in your team can see where each opportunity stands.
- ERP · Enterprise resource planning ERP (enterprise resource planning) software runs your main business activities, such as sales, purchases, stock, production and accounts, on one shared set of data. An entry made once, like an invoice, updates stock, the customer's balance, GST and the books together.
- KPI · Key performance indicator A KPI (key performance indicator) is a number you track regularly to see whether your business is moving towards a goal, such as monthly sales, collections, gross margin or days sales outstanding. A few well-chosen KPIs show you where to act before problems reach the accounts.
- MCP · Model Context Protocol MCP (Model Context Protocol) is an open standard that lets an AI assistant, such as Claude or ChatGPT, use other software through named tools. With it, an assistant can read your business data and, where you allow, prepare entries, instead of you copying figures into a chat.
- Multi-company accounting Multi-company accounting means keeping the books of several businesses, such as a family's proprietorship, partnership firm and private limited company, separately but from one login. Each business keeps its own ledgers, GST returns and reports.
- SLA · Service level agreement An SLA (service level agreement) is the part of a service contract that sets measurable standards, such as response time, resolution time or uptime, and what happens if they are missed. It turns a general promise of good service into targets both sides can check.
- Udyam registration · MSME registration on the Udyam portal Udyam registration is the free, online registration that identifies a business as a micro, small or medium enterprise (MSME) in India. It gives a permanent Udyam number and certificate, and it is what entitles a micro or small supplier to be paid within 45 days.
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