What is GST Reconciliation?

Common GST Reconciliation Methods

Some well-known methods of GST reconciliation are:

• Reconciliation of GSTR-3B and GSTR 2A/2B: Here, you should check for any mismatch of  Input Tax Credit  amounts entered in GSTR-3B and GSTR-2A/2B.
• GSTR-3B and GSTR-1 Reconciliation: Compare these two returns to identify any discrepancies in sales information.
• Check for mismatches between ITC values entered in GSTR-2B and ITC values in your books of accounts. If there is a mismatch between the two values, you must diligently follow up with the vendors (i.e. counterparties to your transactions) to reconcile this mismatch. This method came into effect on 1st January 2022, as the previous method of matching Provisional ITC with Actual ITC claimable under GSTR-2B became obsolete with the removal of Provisional ITC under  section 16(2)(aa)  from 31st December 2021.
• Check for mismatches in sales information entered in the books of accounts and those entered in  GSTR-1 . (The information in GSTR-1 is auto-populated from the e-invoicing system).
• Check for any mismatch in tax payable by comparing amounts in GSTR-3B (auto-populated) and the books of accounts.

Consequences of Not Conducting Reconciliation

The consequences of not performing the reconciliation are sufficient to put the taxpayer at risk. Here are a few of the losses that taxpayers must bear in case of improper reconciliation:

• The client’s ITC claim might not be approved. The tax authorities might reject the claim due to discrepancies.
• There is a great likelihood of receiving a notification from the IT department claiming excessive credit.
• Payment in full was paid to fraudulent suppliers.
• Loss of client confidence due to default.
• Overuse of credit could result in higher client interest payments.

Which Data Should be Reconciled Under GST?

Reconciliation under GST is crucial to ensure accurate return filing, correct Input Tax Credit (ITC) claims, and to avoid notices or penalties. Businesses should reconcile the following key data:

• GSTR-1 vs GSTR-3B: Ensure that the outward supply details reported in  GSTR-1  match with the tax liability declared in GSTR-3B.
• Purchase Register vs GSTR-2B: Match your purchase records with  GSTR-2B  to verify eligible ITC and identify any missing invoices from suppliers.
• ITC Claimed vs Eligible ITC: Check that the ITC claimed in GSTR-3B is only for valid and eligible purchases as shown in GSTR-2B.
• Books of Accounts vs Supplier Invoices: Ensure that the invoices recorded in your accounting system match the invoices uploaded by your vendors.

Regular reconciliation helps in smooth compliance, avoids errors in returns, and prevents loss of Input Tax Credit due to mismatches or incorrect reporting.

How to do GST Reconciliation?

GST Reconciliation must be done on a month-wise basis for the entire Financial Year, and any amendments made to GST returns of the previous Financial Year must be considered while filing the return

GST reconciliation must be done at the following levels:

Reconciling the Data for Every GSTIN (vendor-wise)

• Claim ITC that belongs to the relevant Financial Year if it has not been claimed earlier, or reverse the ineligible Input Tax Credit if it is not identified earlier.
• Check for mismatches and reconcile the table of exports under 6A of GSTR-1 with the corresponding declaration in the  GSTR-3B  return.
• Check for mismatch and reconcile the Matching Table of Exports under 6A of GSTR-1 with the details of shipping bills submitted on ICEGATE.
• Compare the Annual Income Tax Return against the Annual GST return for the same Financial Year.

This procedure will help you find and claim any Input Tax Credit that has remained unclaimed.

Declaration of Turnover of Business (at PAN Level)

• Compare your purchase register to your GSTR-2A Returns for the Financial Year
• Compare and reconcile any mismatch in GSTR-1 and GSTR-3B
• Compare and reconcile any mismatch in Input Tax Credit in GSTR-3B and GSTR-2A for the entire Financial Year.

Results of the ITC Reconciliation Form

The following outcomes may occur during the reconciliation procedure or when filing GSTR 2A for purchase:

• Matching invoices is the necessary outcome of proceeding with processing the ITC grant. A matched invoice indicates that the data has been approved by the authorities and will be taken into consideration for the ITC that has been requested.
• When the Invoices are tracked in GSTR 2A and purchase data and the details of the invoices are inconsistent, the discrepancy could be brought about by variations in the invoice amount, date, tax, invoice number, etc. In this case, the taxpayer must contact the supplier, who will then alter or fix the problem in GSTR 1. Once the corrections have been made, the taxpayer’s GSTR 2A will automatically reflect the accurate information.
• A message is displayed if the invoice listed in the purchase data is missing from GSTR 2A. If the supplier hasn’t submitted his returns yet, this can be the case. The taxpayer might experience inconvenience in such a case.
• Sometimes, invoices are included in the taxpayer’s GSTR 2A but not in the purchase data. The supplier may not have delivered the invoice to the recipient, or the taxpayer may have made an entry error on his own. To receive the relevant ITC advantages, the taxpayer must provide the appropriate information in the purchase records.

ITC Reconciliation Benefits for Taxpayers

Some benefits that taxpayers avail with ITC Reconciliation are:

• Granting clients access so they can manage and view their ITC reconciliation.
• Assist the clients in identifying problematic suppliers and requesting follow-ups from them.
• Correcting mistakes in GSTR 2A or purchase records.
• Communicating any mistakes (if any) to the provider on the client’s behalf.
• Invoices absent from your client’s books of accounts are eligible for input tax credits.

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Reconciliation Before vs. Under GST

Before GST, reconciling tax records was often manual and tedious, involving matching records across different tax returns and invoices. Businesses had to verify purchase data manually, which was time-consuming and prone to errors. Additionally, each state had separate tax records, making nationwide reconciliation a complex task. Errors or mismatches often led to penalties and hindered financial accuracy, requiring multiple rounds of checks.

Under GST, reconciliation has become a more streamlined but critical task. GST requires businesses to reconcile their purchase and sales data with suppliers’ records through GSTR-2A and GSTR-2B, where data is auto-populated based on suppliers’ filings. This automation reduces the risk of mismatches but requires regular verification to avoid mismatches that could lead to Input Tax Credit (ITC) denial. The new process is faster and more transparent and allows for the real-time tracking of records. However, it still demands careful monitoring to ensure compliance, as mismatches can delay credit claims or cause compliance issues.

Best Software to Reconcile GST Data Faster and Ensure 100% Compliance

BUSY  accounting software  offers a comprehensive GST reconciliation tool designed to simplify the reconciliation process. It automatically fetches data from GSTR-2A and GSTR-2B, helping businesses quickly identify mismatches and resolve them. By providing real-time tracking,  BUSY  ensures 100% compliance, saves time, and reduces the risk of errors. The software also generates detailed reports for accurate record-keeping, making GST reconciliation faster and more manageable.