GST reconciliation involves the matching of sales and purchase data between different returns as well as sales and purchase registers. In general, reconciliation means comparing two sets of data entries to identify any differences or variances. It is done to correct the unintentional errors earlier committed or any omissions.
Reconciliation is done to cover all the details of purchases by the registered taxpayer to grant him the correct amount of credit. The process involves matching details filed by the supplier in GSTR 1 with the purchase data uploaded by the registered taxpayer
Let us attempt to understand more about Matching and reconciliation under GST.
Following mismatches or differences can be noticed by taking up the following matching and reconciliation exercise:
1. Differences between the amount of input tax credit shown in GSTR- 3B and the GSTR 2A/ GSTR-2B
2. Discrepancies in sales details between GSTR-3B and GSTR-1
3. Until 31st Dec 2021, differences in the provisional credit as claimed under CGST Rule 36(4) and the actual credit that is claimable as per GSTR-2B across return periods.
4. Differences between ITC values available in GSTR-2B versus ITC available in books of accounts for rigorous vendor follow-ups especially from 1st Jan 2022 after removing provisional ITC under Section 16(2) (aa).
5. Differences in sales details between the books of accounts and GSTR-1 as auto-populated from the e-invoicing system.
6. Differences in tax payable upon comparing the auto-populated GSTR-3B with the books of accounts.
Any differences noticed between these returns will lead to scrutiny notices being issued to the taxpayers or worse suspension of GST registration.
There can be several causes for mismatches. Popular ones are:
1. The vendor has declared liability but credit is not availed in GST returns: Such credits should be availed at the earlier due date of September returns or Annual returns.
2. The vendor has not declared liability on supplies made but businesses have availed credit on such procurements in the GST returns: Businesses should follow up with the vendor to ensure that the liability is declared. Else, risks of such credits being disallowed may arise.
3. The mismatch between liability declared by the vendor and credit availed: The reasons for differences should be identified and reconciled appropriately (e.g. by issuing debit notes/credit notes etc.) at the earlier of, filing the return under section 39 for September* following the end of the financial year to which a particular invoice pertains, or the furnishing of the relevant annual return.
4. Mistakes in the details furnished: There can be a mismatch in the fields such as GSTIN of the supplier/recipient, number and date of the invoice/debit note, etc. Make amendments to the GST returns of the month following the relevant month when mistakes were committed.
To start with, reconciliation must be done for every GSTIN and then must be considered at a PAN level. Reconciliation must be done across months for the entire FY. Not just that, but the amendments made to GST returns of the previous FY in the current FY must also be considered.
ITC is the most important component of your GST returns as it holds greater relevance when compared to any other component of the GST returns. The stage at which the sanctity of claims was checked in the previous tax regime is no longer the same as the current GST regime. The genuineness can be confirmed by a taxpayer now at the stage of filing GST returns (vis-a-vis with GSTR-2B or GSTR-2A and taking action). Earlier, tax authorities usually carry out this check while processing the returns.
Hence, vendor-wise reconciliation must be done regularly. If not done, taxpayers must consider doing it before filing GST returns for September of FY following the relevant FY. This will help identify and declare any unclaimed ITC within the deadline.
1. Claim ITC belonging to a relevant FY, if not claimed earlier, or reverse the ineligible ITC, if not identified and done earlier.
2. Match Table of exports at 6A of GSTR-1 vis-a-vis Corresponding declaration in GSTR-3B
3. Matching Table of exports at 6A of GSTR-1 vis-a-vis details of shipping bills submitted on ICEGATE
4. Comparison between Annual Income Tax Return with Annual GST return
Declaration of Turnover from Business (at PAN level)
5. Comparing Purchase register vis-a-vis GSTR-2A for the entire FY
6. Compare GSTR-1 vis-a-vis GSTR-3B
7. To Compare the ITC in GST-3B vis-a-vis GSTR 2A for the entire year
Reconciliation or matching sales and purchase details with returns is not new to any taxpayer. This has been prevalent in earlier VAT and excise regimes too. During the pre-GST regime, the matching of data was a comparatively easier task for many business organizations, due to the familiarity and lower penal implications.
If the tax department found some discrepancy in processing regular returns or annual return filing, only then would communications be sent to the taxpayer. Accordingly, further scrutiny and audits would be carried out by the authorities.
But under GST, this process has gained significance as the sanity of the input tax credit utilized by businesses is closely and regularly monitored by the GST authorities with the help of the online taxation system. Also, the taxpayers must regularly reconcile their data every month with the data declared by their vendors. It is necessary to claim accurate Input Tax Credit (ITC) and avoid GST registration being suspended due to any major mismatches between returns. The return filing and processing are semantically automated and the GST returns are interlinked.
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