What is Reconciliation Under GST?
Every data point in the records of a business is closely tracked by the GST authorities. Any discrepancy can lead to unnecessary scrutiny, audits, or even suspension of GST registration by the authorities, which can be highly 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, taxpayers may need time to monitor discrepancies or anomalies constantly.
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 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.
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 with 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 match those on the GSTR-2A-received invoices from the supplier.
- 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 and seller’s invoices does not match. This can be because the dates on which the invoices were recorded at the two places differ. In this case, the buyer might be at fault because they must enter the date from the sales invoice.
- Because both parties round off differently, the supplier and buyer invoice values differ by a small amount.
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.
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.
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.