Reconciliation under GST

The GST authorities closely track every data point in the records of a business. Any discrepancy can lead to unnecessary scrutiny, audits, or even suspension of GST registration by the authorities, which can be cumbersome for a business. Thus, proper reconciliation of GST is an absolute must.

Reconciliation in the context of GST means keeping track of each transaction that occurs during a certain period and confirming that the recipient's reported data matches the data reported by the supplier. As a result, it is possible to ensure that no sales or transactions are overlooked or improperly recorded while filing GST returns.

Taxpayers must regularly reconcile their data with the suppliers to correctly claim the input tax credit. Although the reconciliation procedure is easy, it may take time for taxpayers to monitor any discrepancies or anomalies constantly.

What is Reconciliation under GST?

GST Reconciliation is the process of matching sales and purchase data between the different types of GST Returns (like GSTR-2A/2B, GSTR-3B, GSTR-1, etc.), as well as matching the data entered in the sale and purchase registers.

As a taxpayer, you need to track and record each transaction that occurs during a certain period. Thereafter, you need to consult (or ‘reconcile’) with your suppliers (in cases where you are the recipient) and recipients of your goods and services (in cases where you are the supplier). This reconciliation is the process of ensuring that the data recorded by you match precisely with the corresponding data entered by the counterparties to your transactions. This process ensures that no sales or transactions are overlooked or improperly recorded while filing GST returns.

For taxpayers, reconciling and matching GST returns is not new because it was used frequently under the previous taxation systems as well. Earlier, it was simple to match data between tax returns and the books of accounts. If there were a discrepancy, the authorities would inform the taxpayer and conduct additional audits and examinations as necessary.

However, under GST, reconciliation has become far more critical because it is linked to the ITC claims made by firms. ITC claims are monitored very closely by the tax authorities. Therefore, taxpayers must routinely compare their data with the information provided by their source.

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.

Why is Reconciliation Necessary?

GST reconciliation is crucial for many reasons, some of which are as follows:

• As a taxpayer, you can claim Input Tax Credit only if the invoice is attached along with your GSTR-2B Return. Because of this requirement, the taxpayer must reconcile any difference between the ITC as per their purchase register and the ITC as entered in the GSTR-2B Return.

• GST Returns are required to be filed monthly or quarterly, depending on the turnover of a business. Thereafter, at the end of the financial year, annual returns need to be filed as well, where the deadline is 31st December of the following Financial Year. To ensure that the data filed throughout the year is correct, taxpayers must reconcile and consolidate the data before making the declaration.

• All taxpayers must adhere to certain deadlines for amendments to GST Returns Data or claims of Input Tax Credit. According to the CGST Act, you need to take the following actions before the deadlines:

  • Claim eligible Input Tax Credit against invoices raised in a Financial Year.

  • Declare Credit Debit Notes issued against any invoices raised in a Financial Year.

  • Amend the information reported in the GST Returns filed in a Financial Year.

Consequences of Not Conducting Reconciliation

The consequences of not performing the reconciliation are sufficient to put the taxpayer in danger. 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.

Common Issues faced During Reconciliation

The fact that the relevant parties use different methods for their invoice numbers presents one of the most significant difficulties during GST reconciliation. Due to this, the implementation method may have a harder time obtaining a precise match around the invoice number. These issues might be resolved while also making the process of matching and reconciling data from GST returns easier due to a potent reconciliation tool. The following is a list of some of the main issues with GST return reconciliation:

• The invoice numbers used by the buyer to record transactions do not align with those on the GSTR-2A-received invoices from the supplier. They can both adhere to different conventions, which could be the cause.

• The seller has raised an invoice using a different GSTIN than the actual GSTIN of the buyer since the buyer conducts business in various states.

• The buyer and the supplier have kept track of invoices during various return periods.

• The information on the buyer's invoice and the seller's invoice do not match. This can be because the dates on which the invoices were recorded at the two places differ. In this instance, the buyer might be at fault because they were required to enter the date from the sales invoice.

• Because both parties round off differently, the invoice values for the supplier and the buyer differ by a small amount.

Causes of GST Reconciliation Mismatches

Some of the causes of GST Reconciliation Mismatches are: 

• Although the supplier has disclosed the responsibility, the credit has not yet been applied to the GST returns. Such credits must be used before the September or annual return deadline.

• Even though companies have claimed credits for supplies in their GST returns, the supplier has not stated that these purchases are subject to liability. Businesses in this situation should follow up with the provider to ensure the liability is acknowledged. Further delays could increase the likelihood that such credits won't be accepted.

• Mismatches between the credit used and the seller's declared credit. The cause of this discrepancy needs to be found and rectified, either by issuing debit notes or credit notes.

• The information provided, such as the recipient's or supplier's GSTIN, the invoice's number and date, etc., may not match. The GST returns for the month after the month in which the errors were made should be amended.

How to do GST Reconciliation?

Input Tax Credit is the largest and, therefore, most crucial component of your GST Returns. 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 and done earlier.

• Check for mismatches and reconcile the exports table 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. This can be the case if the supplier hasn't submitted his returns yet. The taxpayer might experience inconvenience in such a case.

• There are times when 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 their own ITC reconciliation and view it.

• 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.

Conclusion

To avoid disruption in business activities from the GST authorities, properly reconcile GST returns regularly. Proper 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.

However, to do this manually is a Herculean and near-impossible task. Hence, it is strongly recommended that you use fully automated software that can do GST reconciliation for your business without the need for excessive human resources, time, and effort on your part.

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. We invite you to register for a free trial to see Busy's Accounting Software in action.