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.

Causes of GST Reconciliation Mismatches

Some of the causes of GST Reconciliation Mismatches are:

• The supplier must have declared the liability, but the credit has not yet been claimed in the GST returns. It’s essential to utilise these credits before the due date for September or Annual returns.
• In cases where businesses have claimed credits for suppliers in the GTS returns, but the supplier hasn’t declared the liability for the procurement, businesses must follow up with the vendor and ensure that the liability is declared.
• Mismatches can also occur between the liability the supplier declares and the credit businesses claim. Debit notes or Credit notes must be issued after identifying the reason for the mismatch.
• Discrepancies in details such as the GSTIN of the supplier/recipient, invoice number and date, etc., can cause mismatches. These mistakes should be amended in the GST returns of the following month.

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.

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.

Conclusion

To avoid disruption in business activities from the GST authorities, reconcile GST returns regularly. Reconciliation will assist you in determining and revealing the necessary modifications within the allotted time. You might also avoid receiving any inspection notices from the tax authorities.

Reconciling manually is a difficult and tedious task. You should utilise fully automated software for your business to perform reconciliation without requiring excessive human resources, time, and effort.

BUSY Accounting Software provides a fully automated and scalable solution for all your business accounting needs, including automatic GSTR 2A/2B reconciliation, auto E-Way Bill Generation, auto E-Invoice Generation and much more.