GST RECONCILIATION – What, Why & How
What is Reconciliation?
Though this term has not been explained under GST, if we refer to accounting, reconciliation is the process of securing that two sets of records i.e. the balances of two accounts are in alignment. Reconciliation is used to ensure that the money deducting from an account matches the actual money spent which is done by making sure that the balances match at the end of a particular accounting period. Reconciliation holds importance under taxation because it can give rise to tax under paid or over paid or not paid.
Why is Reconciliation required under GST?
Form GSTR 9C is a reconciliation statement which is required to be prepared to reconcile the difference in the value of supplies declared in the annual return with the audited annual financial statement. These differences can arise due to following situations:
- Difference in data reflected in GSTR 2A with your books of accounts. GSTR 2A is a purchase related statement that compiles data relating to all inward supplies through the auto-population from multiple suppliers’ returns filed in GST portal.
- Discrepancies between data reflecting in GSTR -3B and GSTR-1.
- Difference in ITC credit available as per automatically updated from GSTR 2B and your books of accounts.
With effect from 1st January 2021, if the tax officer may instantly suspend GST registration of taxpayer and send show cause notice to cancel registration in form REG-31 if he finds any differences:
- On comparison of details of outward supplies furnished in GSTR-1 vs GSTR 3B
- On comparison of details of inward supplies reflecting in the GSTR-2B vs GSTR-3B
Reasons for mismatches in GST Returns
There can be various reasons for mismatching as follows:
- One of the most common mistakes that occurs is quoting incorrect GSTIN while filing returns.
- When vendor fails to include certain invoices on which the registered person has claimed Input tax credit (ITC).
- There might be some clerical errors in punching invoice details including invoice number, tax amount, invoice value, etc.
- Even when the vendor has declared liability of a registered person correctly, he omits to avail Input tax credit on that.
- There can be a difference between ITC availed by the registered person and the amount declared by the vendor due to incorrect liability declared by the supplier.
How to do GST Reconciliation?
Reconciliation is not a one-time process but a continuous one and it must be done for every GSTIN. A registered person must conduct monthly reconciliations and consolidate them on an annual basis. Also, in the case of large-scale operations, vendor-wise reconciliation must be carried out more often than monthly reconciliations.
- It is important to consider the amendments made to GST returns of the previous FY in the current FY.
- ITC is one of the most important components of GST returns as it holds great relevance. Hence, it should be ensured that the ITC is claimed and utilized in full and no part of ITC is left unused or it lapses.
- Also the details of GST Annual Return and Income Tax Return should be reconciled.
- Purchase register should be compared with Form GSTR 2A for the entire FY.
- The register relating to the procurement of input services should match with details in Form GSTR 2A.
- Sales register should be compared with Form GSTR 1 for the entire FY.
- Input tax credit claimed as per the books of accounts should match with that in Form GSTR 2B.
- Comparison of Form GSTR-1 with the data in Form GSTR-3B should be done
- The Input tax credit that has lapsed which could not be claimed within the due date must be reversed.
Some Common Issues with GST Reconciliation
Reconciliation under GST seems to be a simple process due to automation but it still consumes lot of time and resources. The taxpayers are required to continuously build a communication with vendors for making changes in the returns filed by them or even to track Input tax credit claims. If you have only small amount of transactions then it is quite easy to monitor. Whereas, in case you have thousands of invoices in a month, then even a small amount holds a significant value. Therefore, reconciliation of the returns data must be conducted on regular basis under GST.
There are some concerns which revolve around a taxpayer’s head that is he being tax compliant in accordance with GST and claiming of ITC or is he at fault anywhere and hence there might be a possibility of getting notices later.
The major problems with the reconciliation under GST between GST Returns are:
- The invoice date by purchaser doesn’t match with seller and because of this difference, date of recording the invoices is different at both places.
- The supplier and purchaser have recorded invoices in different return periods.
- The invoice value differs at supplier and purchaser’s end in case a Credit Note or Debit Note is issued and it fails to match.
- When invoice number and respective invoice date do not match while only the invoice value matches between two parties.
- There are a lot invoices between a purchaser and supplier where every invoice is of same value at different dates and one of the parties has recorded invoices higher than the other party. This happens mostly in case of regular fixed supply business.
One of major provocations in doing a reconciliation is that both parties involved may have different nomenclature of storing the invoice numbers, while the implementation has a hard match around invoice number.
CA Palak S Jain
CMO, Financial analyst, Expertbells Consulting Pvt Ltd.