What do you mean by GST Reconciliation?
The concept of GST reconciliation and matching is not new as far as the taxpayers are concerned. In fact, this process has been modeled upon the former VAT and excise laws. Previously, matching of data between tax returns and the books of accounts was quite easy for most of the enterprises. Suppose if the department that is responsible for processing the returns came across some discrepancies, the taxpayer would be sent the communications, following which further inspection and audits would be done.
In the GST system, this process has gained much importance, as the rationality of the Input Tax Credit used by the businesses is being regularly checked by the GST personnel. Further, under this regime, the taxpayers are required to reconcile their data each month along with the data declared by their vendors. The return filing and processing are automated semantically, and the GST returns are inter-connected.
Some of the Common Errors which Occur During GST Reconciliation
Below given are some of the mismatches which occur during the reconciliation process:
- Variances between the amount of credit in GSTR 3B and GSTR 2A or/and
- Alterations in the provisional credit claimed and the actual credit which is claimable. Normally, this situation happens during transition phases
- Differences between GSTR 3B and GSTR 1
Scrutiny notices would be sent to the taxpayers if there are any variations observed between these returns.
Mismatches can occur due to several reasons. Some of the common reasons are:
- Though the vendor has not declared liability on the supplies which have been already done with, the businesses have already taken credit for such purchases in the GST returns. If the businesses did not carry out the necessary follow up with the vendor to make sure that the liability is declared, the risks pertaining to such credits getting rejected may increase
- The mistakes which occur in the already furnished details. Mismatches can occur in the fields like the date and number of the debit note/invoice, the GSTIN of the supplier/recipient, etc. Further, if amendments are made in the GST returns of the month succeeding the relevant month during which the mistakes happened, it may lead to mismatches as well
- Mismatches occur in the credit availed and the liability declared by the vendor. In fact, the reasons for these variations should be recognized and reconciled accordingly
- Though the liability has been declared by the vendor, the credit is not availed in the GST return. Such credits should be utilized at the earliest before the due date of September returns or annual returns.
How to Select a Software/Tool which Enables Quicker Reconciliation and Guarantees 100% Compliance?
A powerful technological solution can address all of the GST reconciliation challenges in an effective manner, which in turn helps to add value to the business concerned. Some of the features which are essential for the matching and reconciliation purposes include:
- The GST reconciliation software should have the ability to deal with huge chunks of data
- A business owner should be able to get the data into the reconciliation system quite easily from any type of source like Excel, ERP, bill books, etc.
- It should make the entire process seamless and efficient during each month, that the business owner can stay relaxed
- Proactive reminders and the availability of an automated system in order to minimize human interventions would also help in making the process of reconciliation more efficient
- The software/tool must be exceptionally intelligent to tackle any missing/wrong information like wrong dates, invoice numbers, tax rates, sale value, missing items, etc. The GST reconciliation software should be capable of providing reconciliation efficiently in all these instances
- It should be capable of providing in-depth reporting and insights which can help deal with the challenges successfully
- Given the fact that the GST rules keep on changing from time to time, the tool/software should be able to evolve quickly and operate as per the changes in the rules.
Carrying Out GST Reconciliation in Five Easy Steps
The reconciliation process under the GST system is all about matching the data filed by the suppliers with that of the recipients and recording all the transactions that happened during that time. Further, this process guarantees that no transactions or procurements are excluded or wrongly stated in the GST returns.
The taxpayers are required to reconcile their data with that of the vendors regularly in order to claim the Input Tax Credit (ITC) for which they are eligible. Though reconciliation is simple, it may be time-consuming as the taxpayers need to watch out on a continuous basis for any discrepancies or mismatches that may have a serious impact on the ITC claim.
Below given are five steps to handle the reconciliation process easily:
1. Under the GST reconciliation process for the relevant financial year, it is mandatory that the taxpayers need to file the entire periodic GST return. Even if the due date of a certain GST return is overlooked, it needs to be filed along with the interest or the late fee, whichever is applicable. In fact, if the GST returns are not filed in time, it may affect the matching and reconciliation procedure. Further, the taxpayers are required to keep their books of accounts up-to-date and align the tax returns in accordance with the same. Moreover, unless the entire GST returns are filed, the taxpayers would not be able to claim the ITC
2. It is important for the books of accounts and the GST return to be in agreement with each other for the purpose of claiming ITC. In addition, the taxpayers need to keep a check on the taxes paid as per the reverse charge system while they claim ITC on purchases. However, a taxpayer can benefit from the credit of taxes paid according to the reverse charge system only if the goods and/or services are utilized or would be utilized for the sake of business
3. The taxpayers need to find out the mismatches and make corrections in the relevant entries in the books of accounts. Further, they also need to amend these details in the upcoming GST return filing period. Though the GST laws do not allow to revise tax returns filed during the previous periods, they permit to file the corrected entries through an amendment return in the subsequent periodic return. Further, these entries need to be filed in GSTR 1 and GSTR 3B as well.
Ensure that the purchase register is carefully matched with GSTR 3B (uploaded on a monthly basis) and GSTR 2A details (uploaded by the supplier). It is essential to streamline the GSTR 3B return, the books of accounts, and the GSTR 2A form to avail the ITC completely on the related purchases, or else, the taxpayer may lose the ITC claim, which ends up in paying extra taxes
4. The communication between the vendors and customers is important as it results in the relentless reporting of the details as far as the GST returns are concerned. Further, the chances of omission, mismatches, or incorrect entries are considerably minimized when both the suppliers and the recipients coordinate their details and then file the GST returns. It is also important to find out the non-compliant vendors, interact with them, and address their issues which will further help the recipients to maximize their ITC. Currently, there are many best GST reconciliation software available which could provide help in minimizing the communication gap between the recipients and the suppliers. This kind of software allows the users to send a reconciliation mismatch report to the suppliers or vendors to address any issue regarding the same
5. Finally, the taxpayers are required to report all the corrected sale or purchase transactions of the relevant financial year, for the September returns.
In short, GST reconciliation is an ongoing process that should be carried out periodically in order to claim maximum credit and also to evade mismatches to a greater extent.