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:
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:
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:
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:
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.
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]