What is reconciliation?
The word “reconciliation” has not been defined under the GST Act. Although, in accounting terms, “reconciliation” can be explained as a process of matching balances at the end of a particular period to ensure two sets of accounting records agree with one another.
With the amendments brought out in Finance Budget, 2021, it has made been compulsory for every registered person excluding an Input Service Distributor to adhere to the following compliance mandates:
- Furnish annual return, electronically
- Furnish a reconciliation statement on a self-certification basis
Before the amendment in CGST Act, 2017, GST audit and reconciliation statement were to be filed by a Chartered Accountant/ Cost Accountant. It was compulsory for registered persons who had a turnover of more than Rs. 2 crores. However, the limit is not prescribed anymore and all registered persons are required to stick to the compliance requirements.
What is reconciliation under GST?
A reconciliation statement in Form GSTR 9C 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, which can occur due to:
- The difference in data reflected in GSTR 2A with one’s books of accounts. GSTR 2A is a statement that compiles data relating to all inward supplies through the auto-population from multiple suppliers’ returns filed in GSTR-1, GSTR-5, GSTR-6, GSTR-7, GSTR-8.
- The difference in data reflected in GSTR 1 and GSTR 3B.
- The difference in ITC credit available as per auto-populated GSTR 2B and one’s books of accounts
Why is reconciliation under the CGST Act important?
It is important to ensure there is no mismatch between the furnished GST returns. Since the GST returns are integrated and linked, the GST authorities can trace discrepancies easily. In case there are mismatches between books of accounts and returns filed:
- It may lead to the reversal of Input Tax Credit claim, which will result in increased tax liability.
- In case discrepancies are found in your GSTR Form 1, Form 2B, and Form 3B, it will lead to suspension of GST registration.
- The jurisdictional tax officer may issue scrutiny notices and penalties for evasion of tax
Moreover, ITC is meant to ensure that registered persons are not liable to pay tax multiple times and is very important for the removal of cascading effect. When in case, there are discrepancies in GST tax liabilities, it also causes heavy disruption in working capital flow.
What are the various reasons for mismatches in GST Returns?
With the amendment in Rule 36(4), suppliers are entitled to claim only 5 % of ITC credit over and above the credit available in GSTR 2A. Hence, reconciliation is important to ensure accurate ITC is claimed and mismatched and fallacies are avoided.
There can be multiple reasons for mismatches including:
- Quoting incorrect GSTIN while filing returns is one of the most common mistakes
- Clerical errors in punching invoice details including invoice number, invoice value, tax amount, etc.
- Vendor fails to include certain invoices on which the registered person may have claimed ITC.
- A mismatch between ITC availed by the registered person and the amount declared by the vendor due to incorrect liability declared by the supplier.
- The registered person omits to avail ITC even when the vendor has declared his liability correctly.
How to reconcile GST Returns?
One must recognize that reconciliation is not a one-time obligation but a continuous process. A registered person must carry out monthly reconciliations and consolidate them on an annual basis. Moreover, in the case of large-scale operations, vendor-wise reconciliation must be carried out more often than monthly reconciliations.
- One must ensure that changes carried out in GST Returns of previous years in the current year must be carried while reconciling data.
- One must ensure ITC is claimed and utilized in full and no part of ITC lapses and is left unused.
- One must reconcile details in Income Tax Return with the GST Annual Return.
- One must ensure that the purchase register relating to goods matches with details in Form GSTR 2A
- One must ensure that the register relating to the procurement of input services matches with details in Form GSTR 2A
- One must ensure that ITC claimed as per the books of accounts matches with that in Form GSTR 2B.
- One must ensure the sales register matches with Form GSTR-1
- One must ensure details in Form GSTR 1 reconcile with the data in Form GSTR 3B
- One must reverse ITC that has lapsed which could not be claimed within the due date.
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Sakshi Jain is skilled in handling legal as well as compliance aspects of GST and Income Tax. She is a CA Final Student and an LLB student. She is currently working as content and marketing manager for Masters India. She can also be reached at [email protected]
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