Almost each and every business house and indirect tax consultant is struggling with the matching of GST input credit taken with the credit appearing the 2A reports. By now, every GST registered entity has done GST credit reconciliation atleast for the years 2017-18 and 2018-19. Even with the enormous efforts, most of the registered entities and the consultants are not satisfied with the results. But why the reconciliation of GST input credit with GSTR 2A report is so complex? Why with all the expertise, business houses and consultants are not able to come out of this challenge?
The challenges associated with reconciliation of GST Input Credit with 2A report may broadly be divided in two categories, viz,
1. On account of action of Supplier
a. Supplier has not filed GSTR 1. Except a nominal late fee, there is no penal action against the supplier for not filing the GSTR 1. There is lack of any incentive or compulsion to file GSTR 1 on time.
b. Supplier has filed GSTR 1 but reported B2B supplies as B2C supplies. This is very common instances in case of hotel industries.
c. Supplier has reported invoices under wrong GST Registration Number. This type of mistake in very common in cases where buyer has multistate/location operations and have multiple GST Registration Numbers.
d. Supplier has reported Invoices properly in GSTR 1 but amendment certain invoices later on without any intimation to buyer.
2. On account of GSTN Portal/Credit matching process
a. 2A report of a particular month keeps on changing as and when updation is done by supplier. So ideally, reconciliation of a particular month is never closed and it is required to reopen and redone time and again.
b. Credit note and amendment in invoices make it more difficult to link invoices appearing in 2A report and recorded in buyer’s books of accounts.
In addition to above, there are many challenges for buyers in maintaining their records and to have a robust accounting and GST reporting system. I assume, as buyer has to take input credit, buyer accounting and reporting system is efficient enough to handle the requirement.
Further, with the below amendment vide Notification No. 49/2019 –Central Tax dated 9th October 2019, the input credit is capped to 120% of the amount appearing in 2A:
“(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.”.
So the situation is going to be worse as this amendment, inter-alia, requires monthly reconciliation of GST input credit as per books of accounts vis-a vis input credit appearing in 2A.
Possible Solution
The complex process of matching and the mistakes by supplier, either knowingly or otherwise, are leading to a situation of non-availability of input credit to the genuine buyer. It is the buyer, who is in possession of a valid Tax invoice, who has received the goods & services and who has made payment to the supplier but still for none of their mistake, buyer is deprived of the GST input credit.
An alternative solution for this issue may be to make the buyer responsible to pay tax for supplies received by them. Meaning, B2B supplies may be covered under Reverse Charge Mechanism (RCM). So the buyer has to pay GST on the inward supplies and take the input credit of the GST so paid, if eligible and adjustable. This process will eliminate the complex process of Input Credit reconciliation. With application of RCM on B2B supplies, the Government will also be relieved from the mammoth works of creating system/infrastructure for new return system, which is yet to get tested for the real load of data.
The Government and the industries may face initial hiccups in the process, but the benefit will be enormous. A well-studied RCM provision on B2B supplies with some threshold limit, as may be required, will have a very far reaching positive effect.
Author Bio
TENTATIVE (selectively)
“…….So the situation is going to be worse as this amendment, inter-alia, requires monthly reconciliation of GST input credit as per books of accounts vis-a vis input credit appearing in 2A.”
As personally read and understood, this has an obvious reference to the adverse implications arising in the aftermath of the newly inserted sec 43A and the Rule 36 (4) . However, according to the write-up published in the recent Issue (Nov) of the CA Journal ,the constitutional validity (vires) of the Rule may be hotly contestable, with every possible success with due support by case law. That is on the fundamental ground that the said Rule (so also, infer-ably, the related prescribed Forms ) has been made prematurely, even while the section itself has yet to be notified and take effect.
Premised so, it is extremely puzzling why and how the ‘mismatch ‘ problems/ challenges, as spoken of, require to be taken to have come into existence; unless and until the section itself has been notified. And, if so, as a corollary, why and how, in the interim, compliance with the related requirements needs to be regarded as called for, prematurely.
OVER to the field ‘Experts’ for deliberation in-depth and enlightenment/guidance in proper light !
courtesy
As per the suggestion in this Article, each Supplier in B2B would be output exempt. Upon paying GST on RCM basis, that entire ITC would become a cost; since the Output is not taxable (i.e. the buyer of that output is liable on RCM). This is a financially disastrous solution.
Good Suggestiion ! But it is with limiatation.
In case One pay tax on RCM . bUt how its credit will be adjusted if one’s customer is also a Registered person. Customer will also pay on RCM.
Good suggestion but there is a high probability of suppression of sales and purchases. This will be lottery for dishonest tax payers but on the other hand for honest and responsible assesse this idea leads their tax system painless.
As per S.2(68), ITC= tax charged on Invoice + Tax payable under RCM. If tax is not payable but is still paid under RCM, payment shall not qualify as ITC and hence shall not be covered by S.16
how all products and services can be on rcm. basic defect is web based control of entire indirect taxes system and gst computation on output tax less input tax = payable tax instead of taxable turnover as followed in earlier vat and service tax act. hsd, petrol , etc outside gst -01purview. complicated retruns e-filing and continuously changing notifications and no scope for revised returns. gst returns in web portals – matching inputs etc will not work in Indian conditions.
It is a revolutionary idea. The adoption of this process may raise serious questions on the basic theme of GST.
The suggestion made by the author for applying B2B RCM supplies on purchases may benefit the purchaser as ITC available becomes ascertainable to him.
More over, he has to make the net of GST payment to the sellers.
Practically there is no extra burden on buyer. Further if the said dealer makes B2B supplies, the new buyer will pay the RCM.
It looks like an another challenging experiment which requires a serious discussion on implications of non-payment of RCM GST by the buyer.
worst suggestion.
why buyer has to pay every month when almost all business runs on credit of minimum 60 days.
paying tax and taking credit is just a joke.
best totally take away GST and also input mechanism
no problem at all.
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Good suggestion
In my view RCM is not a solution because we will pay GST on purchase under RCM but our output GST liability will not arise due to RCM . Our ITC will accumulate. Refund claim can not be raised due to Supply is exempt.
If we paid GST under RCM and avail credit, where we utilise this credit if our all sale is B2B? because as per you my all sale will be covered under RCM.
The problem of ITC mismatch also can be eliminated by enabling GSTR-2 return. The purchaser/buyer will be able to upload the purchases and services received and to be accepted by supplier who has rendered the supplies reflecting in his GSTR-1A. Reconciliation at this point will also be known to supplier without manual communication and any discrepancies will be sorted out quickly
Thats a good suggestions but what in case if the buyer does not pay the Tax, then again there will be a reconciliation required on Govt. part and also there is a possibility that if supplier does not upload the sales in GSTR-1 that will be a loss of review to the Govt.