GST

An overview of Matching and Reconciliation under GST

Reconciliation under GST

Matching and Reconciliation under GST involves matching of data from different sets of data with a view to reach a conclusion whether the tax paid in excess, or paid short or not paid at all.

What do you mean by Reconciliation under GST?

In common parlance, reconciliation means when two sets of data get compared in order to find out any variances and differences between the two and correct and rectify any unintentional errors if any.

Reconciliation under GST is a process where the matching of data related to both sales and purchase between sales and purchase registers and different returns is done to find out whether tax paid is short or not paid or excess paid.

Importance of Reconciliation under GST

After conducting the exercise of Reconciliation under GST, mismatches and differences can be found out in the following cases:

  • Where differences exist in the amount of ITC (Input Tax Credit) shown in the form GSTR-3B and form GSTR-2B/ GSTR-2A.
  • Whether any discrepancy exists in the sales details between form GSTR-3B and GSTR-1.
  • There are instances where differences exist between the provisional credit claimed under the CGST Rule 36(4) and the actual credit that is claimable by form GSTR-2B. This was valid till 31st December, 2021.
  • Differences may exist between the ITC values inserted in GSTR-2B and the ITC that is available in the books of accounts of the vendor after 1st Jan, 2022 after the removal of the concept of provisional ITC by section 16(2)(aa).
  • Differences can also arise between the entries made in the books of accounts and GSTR-1 from the e-invoicing system.
  • Differences can also arise in tax payable between the entries made in the books of accounts and GSTR-3.

If any differences are found while filing the above mentioned returns, the scrutiny notices can be issued against the tax payer or even to the extent of suspension of notices.

Following are some of the causes of mismatches:

  • Liability has been declared by the vendor but the credit has not been availed in GST returns. Such credits must be availed before the due date in September or before the Annual Returns.
  • Cases where the businesses have availed the credit on the procurements made from the vendor but the vendor has failed to declare liability on supplies in the GST returns. Therefore, the businesses should follow up with the vendor so that he declares the liability.
  • Mismatch can also arise between the liability and credit availed by the vendor. The reasons for the differences must be identified and reconciled before filing of returns under section 39 before the month of September following the end of the financial year.
  • Mismatches can also occur because of mistakes in the details furnished: there can be mismatches in the fields such as GSTIN of supplier/recipient, number and date of the invoice/debit note etc. make amendments in the GST returns of the month following the relevant month when mistakes were committed.

Reconciliation before and Reconciliation under GST

The process of matching of sales and purchase details or reconciliation is not a unique process for any taxpayer. This process has been carried forward since the days of VAT and excise tax. However, this process of reconciliation before the advent of regime of GST was much easier because of familiarity with the process and lower penal provisions.

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The communications from the tax department were sent only when the department discovered discrepancies in the regular as well as annual return filings. Only after this did the process of further scrutiny and audit was carried out by the authorities.

This relatively easier process of scrutinising of the returns has completely undergone a change under GST because now the ITC that is claimed by the businesses is being closely watched by the GST authorities with the help of online taxation system. Further, the taxpayer has to regularly keep on reconciling their data from the entries made by his vendors.

It has become important now to accurately claim ITC and avoid any instances of mismatches between returns as the same may result into suspension of the registration. The GST system has inter-linkages with the filing and processing are automated.

Need for Reconciliation under GST

Following are the reasons why reconciliation is required under GST for the businesses:

  • ITC can be claimed by the taxpayers only if they are able to show that invoice is present as part of the GSTR-2B. As a result, a taxpayer is bound to do reconciliation if the whenever ITC claimed as per their purchase register does not match with the GSTR-2B data. Up till July 2020, taxpayers compared only their GSTR-2B register. With the introduction of static return in GSTR-2B, reconciliation under GST has progressed to GSTR-2B from GSTR-2A. However, GSTR-2A is considered for yearly conciliation being a dynamic return.
  • The GST returns are made both on a monthly and quarterly basis and finally once the financial year gets over, annul returns are supposed to be filed before 31st December of the subsequent year. This annual filing of returns requires consolidation of data collected over period of the financial year. In order to ensure correctness in the declarations made and to avoid instances of duplication, reconciliation of the data is required and only once it is done that the values are consolidates and declaration is made.
  • There are certain deadlines which have been stipulated under the provisions of GST law relating to amendments in the GST returns data and to claim ITC. According to section 39 of CGST Act, the following steps must be taken by a taxpayer before filing of returns following the end of the financial year but before the month of September.
  1. The taxpayer must claim the ITC against any invoice raised in the Financial Year
  2. If there is a need of apportionment of ITC belonging to the financial year, then the same must be affected before the prescribed deadline
  3. The credit and debit notes issued in a financial year must be affected before deadline is completed.
  4. Amendments to the information also need to be reported in the GST returns filed in a financial year.
  • The following dates are subject to change as per the notifications issued by Central Board of Indirect Taxes
    • From 1st January, a GST officer can outrightly suspend the registration of a taxpayer and send the show cause notice to the taxpayer for cancellation of his registration in form REG-31 if he finds any discrepancies in the following respects:
      • After having compared the details of outward supplies furnished in form GSTR-1 compared to GSTR 3B
      • Having compared  the details of inward supplies furnished in the form GSTR-2B compared to GSTR-3B
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Concerns related to Reconciliation under GST

Following are some of the concerns of the taxpayer related to the reconciliation under GST:

  • Whether the taxpayer[1] is compliant according to provisions of GST for claiming ITC.
  • Whether the taxpayers is at any fault according to any provision and whether any possibility exists where he can be slapped with notices by the GST department
  • Whether the taxpayer is missing out on working capital due to less filing of ITC
  • Which of the suppliers is causing the most amount of problem in reconciling and what measures can be adopted to make it easier for them as well as for taxpayer himself in reconciling the provision.

The following issues arise at the time of reconciliation under GST between GST returns:

  • Instances where the number recorded by the purchaser does not match with the invoice of the seller received in GSTR-2B because both of them have been following different practices.
  • The purchase might be working in different states and he might have raised an invoice with another GSTIN/HQ GSTIN at a place where he should have raised it in the name of actual purchaser GSTIN. In this type of cases, it may not be reflect at a GSTIN level.
  • The date mentioned in the invoice by the purchaser is different and doesn’t match with the seller. There is usually a difference in the date of recording of the invoices at both the places by most of the purchasers where they should have entered the same date as mentioned in the sales invoice.
  • The invoices that have been recorded by the purchasers and suppliers are in different return periods.
  • When there are differences in the invoice value of the both the supplier and purchaser because of difference in their practices of rounding off. The differences are of minor value only.
  • When the values differs at both suppliers’ and purchasers’ end because credit note or debit note was issued which fails to match at the time of reconciliation.
  • Instances where the dates in the invoices do not match but values match between the two parties.
  • There are cases where multiple invoices exist between the supplier and the purchaser and the bills are of the same value but have different dates. Also, one of the parties has recorded invoices higher than the other party. This usually happens in cases where the regular fixed supply business exists.
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How is Reconciliation done under GST?

Reconciliation under GST is done for every GSTIN and then done at the PAN level. Reconciliation under GST is done continuously for every month throughout the financial year. The amendments made in the GST returns regarding the previous financial year are also considered in the present financial year.

The most important part of GST returns is the ITC since it holds more importance than any other part of the GST returns. The level of scrutiny that is prevalent in the present GST regime is way higher than what it used to be in the previous tax regime. In the present system of GST returns, the tax payer gets to know about the genuineness of the returns at the stage of filing of GST returns itself through Form GSTR-2B or GSTR-2A whereas in the previous regime, the tax authorities used to carry out the check whether processing of returns is good or not.

Hence, the taxpayer must do a vendor-wise reconciliation on a regular basis or at the time filing of GST returns before the September of the subsequent Financial Year of the relevant financial year. This helps the taxpayer to identify and declare any unclaimed ITC within the deadline set as per the GST law.

Following steps can be taken by a taxpayer at the time of Reconciliation under GST:

  • The taxpayer must claim the ITC belonging to the relevant financial year if the same has not been claimed earlier or he can reverse the ineligible ITC if the same has not been identified and done earlier.
  • The taxpayer must also match the table of exports at 6A of GSTR-1 in relation to the details of shipping bills submitted on ICEGATE.
  • The taxpayer must also match the table of exports at 6A of GSTR-1 in relation to the corresponding declaration made in form GSTR-3B.
  • The taxpayer must also compare Annual Income Tax Return with the Annual GST return.

Declaration of Turnover generated from business (at PAN level)

  • The taxpayer must make comparison of the purchase register with GSTR-2A for the entire Financial Year.
  • Comparison must also be done between GSTR-1 and GSTR-3B
  • The ITC should also be compared in GSTR-3B and also GSTR-2A for the entire year.

Conclusion

Reconciliation under GST may seem to be very simple process due to automation of the system, but still it consumes a lot of time and resources for the simple reason that both taxpayer has to continuously communicate with the vendor to changes in the claims of ITC or the returns filed by them. Reconciliation under GST is not difficult when a taxpayer has few invoices to reconcile. However, in organisations where the invoices run in thousands, then reconciliation becomes difficult. Therefore, reconciliation must be done regularly to prevent claiming of less ITC or non-payment of ITC or worst case suspension of the GST registration.

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