Year-End GST Reconciliations: A Comprehensive Guide

Well, Good day my friends,

We have finally said good bye to F.Y. 2023-24 and closed our books for the said financial year. It is high time that we now gear up for accuracy in GST return filings and reconciliations.

As the financial year has concluded, businesses under the Goods and Services Tax (GST) regime in India must turn their attention to year-end reconciliations. This crucial process ensures the accuracy of your GST return filing and helps avoid any discrepancies that could lead to penalties or complications down the line.

Presenting ‘Your Quick Guide to Year-End GST Reconciliations’.

The article will also discuss importance of filing GSTR- 1, GSTR- 3B so that beginners may also be able to refer to the reconciliation discussed in the article.

In the world of GST, three crucial elements play a vital role: GSTR-1, GSTR-3B, and your Books of Accounts. While they all contribute to your tax filing, they serve distinct purposes. Let’s break down the key differences:

GSTR-1/ IFF: Outward Supplies

What it is: A monthly or quarterly return that reflects all your outward supplies (sales made) during the period.

Details captured: It includes invoice-wise information like date of invoice, recipient details, HSN/SAC codes, taxable value, GST rate, and tax liability for each outward supply.

Filing frequency: Can be filed monthly or quarterly (IFF under QRMP scheme), depending on your turnover.

Impact on tax payment: GSTR-1 itself doesn’t directly results in tax payment. However, the tax liability calculated here auto populates into GSTR-3B through which the ultimate payment of tax is made.

GSTR-3B: Summary Return

What it is: A monthly return/ quarterly return (QRMP scheme) that summarizes your overall GST transactions for a tax period.

Details captured: It provides a consolidated details of outward supplies including exports (which is nowadays auto populated from GSTR- 1 itself), amount on which tax payable under reverse charge mechanism, ITC claimed on inward supplies (purchases), and tax payment details.

Filing frequency: Must be filed monthly/ quarterly (QRMP) by all registered taxpayers under GST.

Impact on tax payment: GSTR-3B directly determines your tax liability payable for the tax period.

Books of Accounts:

What it is: Your company’s financial records that capture all your business transactions, including sales, purchases, expenses, income, and assets.

Details captured: Provides a detailed breakdown of all your financial activities, not just GST-related transactions.

Impact on tax payment: Indirectly impacts tax payment by providing the underlying data for GSTR-1 and GSTR-3B.

To understand it better:

Think of GSTR-1 as a detailed sales report, listing every customer invoice. GSTR-3B is like a short summary, combining all your sales for the month and ITC with other tax details. Your Books of Accounts are the master ledger, recording all your financial transactions, including those related to GST.

Crucially, all three elements should be reconciled with each other. This means ensuring that the sales figures in GSTR-1 match the sales recorded in your books, and the overall tax liability calculated in GSTR-3B aligns with the data from GSTR-1 and your books. Discrepancies can lead to errors in your tax filing and potential penalties.

What are ‘GST Reconciliations’?

In simpler terms, GST reconciliation involves comparing data from various sources to identify and rectify any errors or omissions. It’s a comprehensive check to ensure that GST returns reflect the same figures as are reflecting in books of accounts.

Why is Year-End Reconciliation Important?

There are several compelling reasons to prioritize year-end GST reconciliations such as:

• Accuracy: It minimizes the risk of errors in your GST filing, preventing potential tax liabilities and penalties.

• Timely ITC Claims: It helps identify any missing ITC from suppliers’ invoices, allowing you to claim them before the prescribed deadline.

• Reduced Scrutiny: Accurate returns reduce the chances of getting flagged for scrutiny by the tax authorities. Even if the assessee gets a notice for scrutiny of returns, reconciled figures will be available at hand for preparation and submissions of defence replies.
• Peace of Mind: A clean reconciliation process ensures peace of mind and avoids last-minute filing hassles.

Since the financial year has just closed, we will be filing GSTR- 1 & GSTR- 3B for the month of March, 2024 in a short while. Any difference that would have occurred in the period April, 2023- February, 2024, can easily be adjusted/ settled in the return of March, 2024 so that the difference stands settled in the financial year itself. If the differences are settled in the same financial year, it becomes easy for the assessee to explain the same before tax authorities.

What to Reconcile under GST During Year-End?

Year-end reconciliations go beyond the regular monthly or quarterly checks. Here’s what you need to compare:

• Monthly Sales data in GSTR-1 matches the sales recorded in books of accounts. This will make sure that no sale invoice goes un- reported in GSTR- 1.
• Monthly Sales as reflected in GSTR- 1 matches with sales declared in GSTR- 3B so that there is no difference in tax payments. It is important to make sure that the data in GSTR- 1 and GSTR- 3B is matched specially for ‘zero- rated supplies’. Any difference in this field may result in delayed/ non- processing of IGST refunds by ICEGATE.
• Claimed Input Tax Credit (ITC) aligns with information available in GSTR-2B.
• Sales data in GSTR-1 matches with e- invoices and e- way bills. It is very important to reconcile GSTR- 1, books and e invoice data. This will make sure that e invoice is present for every sale transaction and the same has been reported in GSTR- 1.
• Purchase data with supplier invoices (GSTR-2B).
• ITC claimed in GSTR-3B with ITC available in GSTR- 2B and your books. ITC is not allowed to be availed in current scenario if the same is not reflecting in GSTR- 2B.
• HSN/SAC codes and GST rates applied on transactions.
• One more important aspect is updating/ filing of shipping bills in GSTR- 1 for all export invoices.

Tips for a Smooth Year-End GST Reconciliation

• Start Early: Though the differences can also be adjusted till November 30, don’t wait until the last minute. Begin the reconciliation process well before filing GSTR- 1 & GSTR- 3B for the month of March, 2024.

• Organize Your Records: Maintain proper records of invoices, sale register, purchase register, e-way bills, and GST returns for easy comparison.

• Leverage Technology: Consider using GST reconciliation software to automate the process and minimize errors.

• Seek Professional Help: If you’re unsure about any aspect of reconciliation, consult a tax professional for guidance.

By following these steps and prioritizing year-end GST reconciliations, you can ensure accurate tax filing, maximize ITC claims, and achieve peace of mind throughout the financial year.

Conclusion

One must be Pro- active and not reactive in the above reconciliations. By understanding the distinct purposes of GSTR-1, GSTR-3B, your books of accounts, and e-way bills, you can effectively navigate the GST system. Remember, regular reconciliation between these elements is essential. This ensures data consistency, minimizes errors, and streamlines your tax filing process. With a clear understanding and a focus on reconciliation, you can stay compliant with GST regulations and avoid any unnecessary complications.

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P.S. If anyone requires format for above reconciliations between GSTR- 1, 3B and books, he/ she may contact the author at [email protected] or whatsapp at +91- 93183 00610. Radhe Radhe