Adjustment of Input Tax Credit under GST
BOOK A FREE DEMO
Why is it necessary to reconcile the returns with the book of accounts?
Prevent missing out on claiming ITC
Sometimes, businesses forget to document the invoices they receive. Reconciliation helps in ensuring that the available ITC is claimed correctly and on time.
Maintaining Internal Control
Strong control is maintained within the organisation when the book of accounts matches the filed returns. Reconciliation guarantees that discrepancies in the taxpayer’s books of accounts are fixed timely.
As a Part of the Audit Process
The book of accounts and GSTR-2B or GSTR-2A make it easier for the auditor to compare the inward supplies and ask the taxpayer to correct any discrepancies. Therefore, taxpayers should reconcile the two regularly and have the data on hand for audit.
Avoid Notices From Tax Authorities
Avoiding mismatches will help you avoid receiving notices from the tax department, which could result in having to pay penalties which could have been avoided. Doing monthly reconciliation and taking appropriate action when there is a mismatch in data are essential activities that will help prevent these notices and penalties.
Reconciliation can be a tedious task if accounting records haven’t been maintained properly. Consider using a powerful GST Accounting Software like BUSY to help you take care of GST compliance requirements.
Also Know About: Busywin
Reconciling Credit Mismatch Between GSTR-2B/2A and GSTR-3B
Reconciling the returns GSTR-2B or GSTR-2A and GSTR-3B has become crucial under the GST Law since the taxpayer can only claim ITC on a specific invoice if that invoice is present in the returns GSTR-2B or GSTR-2A.
The Department can use this idea of matching to check that all transactions that took place within a specific time period are accurately recorded and submitted in the summary return GSTR-3B. The following table outlines what to do if there are discrepancies:
| Credit | Return | Case | Action |
|---|---|---|---|
| Excess credit is declared | GSTR-2A | ITC is not claimed by the recipient in GSTR-3B. The supplier has shown excess outward supplies in GSTR-1. | He should claim the missing ITC in the month in which the discrepancy is identified. He should rectify the same in GSTR-1 of the month in which the discrepancy is identified. |
| Less credit is declared | GSTR-2A | The supplier failed to upload the invoice. Duplicate credit claimed by the recipient in GSTR-3B. | The supplier is asked to rectify the same in the return of the month in which the discrepancy is identified. If the supplier fails to do so, the ITC claimed by the recipient gets added to the output tax liability in the next month. No further action is required if the recipient has already corrected the same. If not, the excess ITC claimed is added to the output tax liability of next month. |
In both of the above situations, the GSTR-9 must include an explanation of the differences between the ITC information from GSTR-2A and GSTR-3B under the following two headings:
- Table 8E: ITC available but not availed
- Table 8F: ITC available but ineligible
Credit Mismatch Between GSTR-2B/3B and Books of Accounts
In this situation, a taxpayer must carry out the next two reconciliations:
Reconcile Data Between GSTR-2A/2B and Books of Accounts
Since the data included in GSTR-2A/2B is provided by the vendors, the reconciliation will require dynamic information. The data changes each time a vendor submits a GSTR-1 or modifies it, requiring a new reconciliation.
Click here to get: GSTR Reconciliation Software
Step 1: Determine which invoices were only entered into the books of accounts and not on the GST portal and which invoices were only accessible through the portal (GSTR-2A) and were not recorded in the books.
Step 2: This invoice discrepancy may occur for any of the reasons listed below:
- Although the supplier did not include invoice information in GSTR-1, the recipient did and claimed the ITC in GSTR-3B at a later date when the supplier uploaded the invoice.
- ITC claim that was duplicated in the recipient’s books of accounts.
- The supplier’s inability to file GSTR-1 or use the incorrect GSTIN when filing GSTR-1.
- Because of an invoice’s recording’s timing discrepancy.
Step 3: Take action against such mismatches, as mentioned in the above table.
Reconciliation Amongst GSTR-3B and Accounts Book
A reconciliation between GSTR-3B and the accounts book needs static data, which must be prepared and recorded by the entity itself.
Step 1: Verify that each Payables ledger for each GST challan the organisation has paid is accurately documented.
Step 2: Compare the ITC reported in GSTR-3B to what is listed in the books of accounts. Pass a corrected entry if there is a mismatch.
Step 3: Check the output of the GST reported in GSTR-3B to the output reported in the books of accounts. Pass a corrected entry if there is a mismatch.
Step 4: Verify the Trial Balance with the Electronic Credit Ledger.
Step 5: Correct any mistakes in GSTR-3B in subsequent months’ returns.
Conclusion
It is crucial for organisations to reconcile their GST Returns with their books of accounts regularly. Failing to do so can result in missing out on claiming input tax credit (ITC) and paying excess tax. Reconciliation also helps to ensure strong internal control and timely correction of mismatches which may otherwise lead to receiving notices from the Tax Department and paying penalties. To make the process of reconciliation easier, we recommend using BUSY GST Accounting Software.
Hi there! I’m a Chartered Accountant with over 20 years of experience in financial accounting and a passion for writing. I enjoy simplifying complex topics like GST and income tax, believing that learning should be a lifelong journey. I'm here to share insights and make financial matters easier for everyone!
Frequently Asked Questions
- What is the adjustment of ITC in GST?The adjustment of ITC in GST refers to offsetting the input tax credit against the output tax liability. This helps businesses reduce their tax payable by claiming credit for the taxes paid on inputs and services used in their operations.
- How does the adjustment of ITC under GST benefit businesses?The adjustment of ITC under GST benefits businesses by reducing their tax liability. By claiming credit for taxes paid on purchases and expenses, companies can lower the GST they need to remit to the government, thus improving cash flow.
- What is the process for adjusting input tax credit under GST?The adjusting input tax credit under GST involves declaring eligible ITC in the GST returns (GSTR-3B) and using the ITC to offset the output tax liability. The taxpayer must pay the remaining balance, if any.
- Can ITC be adjusted against different types of GST liabilities?Yes, ITC can be adjusted against different types of GST liabilities. The IGST credit can be used to pay IGST, CGST, and SGST/UTGST in that order, while the CGST credit can be used for CGST and IGST, and the SGST/UTGST credit can be used for SGST/UTGST and IGST.
- Are there any restrictions on ITC adjustment under GST?Yes, there are restrictions on ITC adjustment under GST. For instance, ITC cannot be claimed on certain goods and services such as motor vehicles (with some exceptions), personal expenses, and goods used for personal consumption.
- How often should businesses adjust ITC in GST returns?Companies should adapt ITC in GST returns every month when filing GSTR-3B. This ensures that the ITC is appropriately utilised to offset the output tax liability and that utilised compliance is up-to-date.
- What happens if there is an error in ITC adjustment in GST returns?An error in the ITC adjustment in GST returns can lead to discrepancies and potential penalties. Businesses should rectify the error in subsequent returns and ensure accurate reporting to avoid fines and interest charges.
- Can ITC be adjusted against late fees or penalties under GST?Under GST, ITC cannot be adjusted against late fees or penalties. It can only offset the output tax liability, not any fees or penalties imposed for non-compliance or late filing of returns.
- What are the documents required to claim ITC adjustment under GST?Valid tax invoices, debit notes, and other relevant documents issued by registered suppliers must claim and adjust ITC under GST. Proper maintenance of these records is essential.
- How can businesses ensure proper adjustment of input tax credit under GST?Companies can ensure appropriate adjustment of input tax credit under GST by maintaining accurate records, regularly reconciling their purchase and sales data, timely filing of GST returns, and seeking professional advice if necessary to comply with GST regulations.
