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Reconciliation under GST

 

Loosely speaking, reconciliation can be defined as, “Comparing different sets of data on the same category, prepared by different people, methods, or organizations. It includes identifying & investigating differences, & taking corrective action when necessary.” It is not merely a fault or difference finding activity, it is also instrumental in ensuring the accuracy, completeness, and timeliness of previous and current transactions. A pertinent component of the reconciliation process is resolving differences. Differences should be identified, investigated, & explained. Corrective action must be taken if needed. Reconciliations should be properly analyzed and documented for future use.

 

Many of our readers, who may or may not be commerce students, must have made a BRS (Bank reconciliation statement) in their school days or in any stage of their life. It was nothing but a comparison of bank balance, as per bank passbook and bank balance as per bank column of cash book. It was one of the easiest topics of the course of the account (I hope you must be remembering It). But today we are talking about various reconciliations done in the GST field in our business activity. A couple of years ago it was considered a tedious job, but software has made these reconciliations a child’s play. Now we shall see different types of reconciliations done in the GST. Before doing that we shall learn in brief about various GST returns, and what these returns tell us.

Related Topic:

ppt on the Audit, Annual Return & Reconciliations under GST

Description of some GST returns

GSTR1 (Or IFF for Quarterly filers of return)

It is a return in which a regular dealer reports all the sales ( along with a description of supply, HSN code, Tax rates, state of supply, GSTIN of the recipient, the Tax registration status of the recipient ) made by him during a taxable period. 

  • It may be filed monthly or quarterly, 
  • It contains the description of Debit/credit notes issued by the taxpayer, 
  • Any advance received, or adjustment made must also be disclosed.
  • It also states, whether the sales are zero-rated, Nill rated, exempt, B2B or B2C, or Non-GST.

Related topic:

GSTR-2A VS With GSTR-3B why the reversal of availed ITC on reconciliation of does not arise

GSTR 2A

It is an auto-populated, read-only statement ( By the GSTN ) of purchases (invoice wise) made by the taxpayer from other registered dealers during a month. It contains all the information reported by the supplier in GSTR-1 or IFF, GSTR-5, GSTR-6, GSTR-7, GSTR-8, ICES.

  • The invoices reported by the suppliers in their GSTR 1 are reflected in the 2A of the recipient. On the strength of these invoices only he can claim the input tax credit.
  • If the supplier furnishes his GSTR 1 of a certain month late – for e.g. GSTR 1 of Jan is filed in May, then those invoices will be reflected in  Jan 2A of the recipient but in the month of May. Therefore he has to check previous all the 2As for some pending bills. With the help of software, this task is done in a jiffy by downloading the previous 2As every time you file 3B.
  • If the supplier reports a particular bill pertaining to a certain month in the GSTR1 of a different month-for e.g.invoice of Jan is reported by the supplier in the GSTR 1 of May, then it will be reflected in the 2A of May.
  • If the supplier reports the invoice date wrongly-For e.g.- If a supplier reports an invoice of Jan date as an invoice of May date, in the May return, but actually files it in July month, then it will be reflected in the 2A of May but in the month of July after his filing. Ergo, you can see how carefully a recipient has to check all the previous month’s 2A’s to get full ITC.
  • It is a dynamic statement, as it changes from day to day, as and when a supplier reports the documents.
  • It is available on a monthly basis.
  • It does not contain any information/advisory on the action a registered buyer should take regarding the ITC. 
  • There is no cut-off date regarding data available in it, as it’s a dynamic statement. For e.g. If a supplier files returns of May in July, then the invoices will be reflected in the May month 2A in the month of August.

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Important things to be considered before GSTR-9,9A Returns and Reconciliation Statement in GSTR-9C for the A.Y.2018-19 under GST Law

GSTR 2B

It is a new, static, month-wise, auto-drafted statement for regular taxpayers (whether or not opted into the QRMP scheme) introduced on the GST portal. This statement was launched from the August 2020 tax period onwards.

  • GSTR-2B provides month-wise information regarding eligible and ineligible Input Tax Credit (ITC), similar to GSTR-2A but remains constant or unchanged for a period. In other words, whenever a person views the GSTR-2B for a month, the data shown in it remains stagnant, without being affected by the subsequent changes made by their suppliers in later months. 
  • The subsequent changes shall be visible in the next month. Hence it helps the viewer in knowing which suppliers are not filing their returns on time. 
  • It also contains information regarding input supplies that attract Reverse charge mechanisms.
  • It also checks whether the taxpayer who has filed GSTR1 has also filed 3B of the month or not. There are cases where the taxpayer has filed GSTR1 to reflect the invoice in the 2A of the customer but has not filed 3B, and hence the tax is not paid on those invoices which are being shown in the 2A. Therefore the customer will not be able to take ITC on such an invoice.
  • This statement depicts document-wise details of ITC eligibility. The  ITC information available in this statement would be from the next day of the last filing date of GSTR-1 for the preceding month up to the last filing date of GSTR-1 for the current month.
  • The data in GSTR-2B is reported in an ergonomic manner to expedite taxpayers to reconcile ITC with their own books of accounts and records. It is just like a reconciliation tool provided by the department for the benefit of the taxpayers. It also acts as a benchmark for the availability of ITC to the recipient.
  • It helps to ensure that the following compliances are made correctly and promptly, and no liability of interest arises for the taxpayer.
  • The input tax credit is not availed more than once, against a particular document. 
  • The reversal of ITC is prompt and correct as per the GST laws.
  • GST on reverse charge basis for the applicable documents, including import of services is paid correctly.
  • This statement indicates the respective tables or columns of GSTR-3B under which the ITC of an invoice/debit note must be taken.

Related Topic:

GSTR 2A Reconciliation Tool

GSTR 3B

The GSTR-3B is a consolidated, Self-declared summary return of inward supplies received and outward supplies made by a taxpayer.

  • The input tax credit which is eligible for adjustment against output tax is done through this return.
  • The ineligible input is also reversed through this return.
  • The tax is paid by the taxpayer by this return.
  • The reverse charge is also paid through this return.
  • The effect of Debit/ Credit notes issued is also done in this return.

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GSTR 9 & 9C with FEW SAMPLE DISCLOSURES

Reconciliation among GSTR 2A, 3B, your accounting data for purchases, ITC available and adjusted against tax liability

(i) You file your 3B only but the filing of the supplier’s GSTR1 is not in your hand. Therefore it becomes very important to reconcile them both. You are totally dependent on the proper filing of GSTR 1 by your supplier. This reconciliation is the mother of all reconciliations. According to the GST Act, the following conditions have to be fulfilled for taking ITC of an invoice.

  1. As per the newly introduced sec 16(2)(aa) of the Finance act 2021,” Input can be claimed against those invoices/ Debit notes only, which are disclosed by the supplier in the GSTR1 and are communicated to the buyer.”
  2. And as per Sec 16(2)(c),” The output tax of the invoice has to be actually paid to the government, either in cash or through the utilization of input tax credit admissible in respect of the said supply; 

Therefore we have to be very careful while adjusting the ITC against the output liability.

(ii) Reconciliation can be done month-wise, quarter wise and year-wise. We shall follow the following process for the monthly reconciliation. 

  • Logically, month-wise reconciliation should be done before filing the 3B of the month, so that we can ascertain which supplier has not filed his return R1. With the advent of IFF, now there is seamless reporting of outward invoices. The excuse of quarterly reporting will not hold water now.
  • Download the 2A return from the portal with the help of software or yourself in the excel format. Arrange the invoices date-wise or party-wise. If you have the software, then download the previous month’s 2As also.
  • Then export your purchases and expenses for the month from your accounting software in excel format. Also, arrange them date wise or party wise
  • Compare both of them in excel or through the software. 
  • There may be some invoices that are in your accounts but not reflecting in the 2A. There may be various reasons for that;

a) The party has not filed its return nor reported in IFF.

b) The GSTIN, place of supply, Name of recipient, or date, reported may be wrong.

c) The invoice has been wrongly reported in B2C instead of B2B.

d) Call the supplier and ask him to confirm the reason.

  • There may also be the case where the invoice is reflecting in your 2A and is not in your accounting records. There may be many reasons for that as well;

a) The supplier has erroneously reported that invoice in your GSTIN instead of the original recipient.

b) You have not entered that invoice in your accounts or entered on the wrong date so that it is not showing in that month.

c) You have not received the original invoice or misplaced it before entering it.

d) First check your own records and then ask from the supplier.

  • If the invoices match, then also there may be some clerical mistakes of difference in Tax rates, Taxable value, date, HSN code, Type of tax, etc.
  • If you have registrations in more than one state then, confirm again that the invoice pertains to that state only. This may also be one of the reasons for the non-reflecting of the invoice in 2A of that GSTIN. Then check your other 2As also.
  • After confirming and correcting all the omissions and unintentional commissions of error, file your 3B. 
  • You can reconcile even after filing your 3B. If any mistake still remains then you can rectify it in the next month’s 3B. If you have to make any entry of tax adjustment, make it on the last day of that month in your accounting software for maintaining uniformity. If any entry of invoice or debit note is to be done after filing the return then make that entry on the first date of next month, so that you can accommodate it in that month’s return.
  • You should also check for any ineligible ITC from your 2A. You should first write it under the column of that tax in the 3B return and then reverse it. This would create a separate account in your books for ITC reversed by you. Also, you should make a separate account of ITC adjusted against output liability per month.
  • Keep a record of this reconciliation, since it will help in the yearly reconciliation and making adjustments in the month of September, ensuing after the end of the financial year. 
  • Also, check the previous month’s 2As if necessary and also the payment status of the input invoices. If any invoice has remained unpaid for more than 6 months, then its ITC has to be reversed. Also, any invoice is eligible for ITC for only one year from the date of its inception.

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New features- How to file GSTR 3b? Step by step process after all amendments

(iii) You should also reconcile on a yearly basis. You can follow the following procedure.

  • Download all the 2As,3Bs of all the months from the portal manually, or by software.
  • Make a table of purchases and ITC available as per 2A month-wise in excel sheet. Compare it with ITC available, ITC reversed, ITC adjusted as per 3B.
  • In the same sheet write the corresponding data from the accounting software.
  • Compare 2A and 3B by finding variances and then find the reasons for differences.
  • Compare 3B and your accounting data of ITC available, ITC reversed, ITC adjusted, month-wise. Find variances and the reasons thereof.
  • Give special attention to September, March, and the month of filing the annual return (GSTR 9). Most of the adjustments are done in these months only.
  • Also, look for debit notes/credit notes for tax adjustment in 3B.

Related Topic:

Reconciliation Statement of Value of Supplies

 

GSTR 1, 3B and our accounting data for sales, output tax, and Debit/Credit Note

(i) This is the second most important reconciliation. It can be done monthly, quarterly and yearly. It can be done twice a month automatically while preparing your GSTR1 (or IFF, for quarterly filers ) and 3B. The following process can be followed for the monthly reconciliation.

  • Since GSTR 1 and 3B both are filed from your end, hence the scope of mistakes is reduced considerably. Moreover with help of software chances of clerical errors have also been reduced to a bare minimum.
  • You must check all the invoices are properly numbered and they must preferably be in chronological order. 
  • The name of the recipient, GSTIN, date, state of supply, Tax rates, Taxable value in the invoice and in the utility for filing GSTR 1 should be the same.
  • All these particulars should also match with the data in your accounting software.
  • If you have cancelled any bill, it should be recorded in the accounts also as cancelled.
  • The totals of output taxes should match in the accounting software and GSTR1. 
  • If you have issued any Debit/ Credit note, then it should be recorded in the accounting software and also in the return.
  • Suppose you have to issue an invoice very necessarily in between two continuously numbered invoices due to date, then number it as, for e.g. (35 A), affix an alphabet after that invoice number. But don’t break the chronological order and continuity of the serial number of the invoice.
  • If you are a quarterly filer of GSTR1 and filing IFF monthly, then make sure that you report all the B2B invoices of a month in the IFF. No B2C invoice has to be reported in IFF. Hence you should make a separate list in an excel sheet, month-wise of B2C invoices because in filing 3B you need all the invoices of that month to calculate the total output tax of that month.
  • Also, segregate B2C invoices amount-wise. B2C invoices above 2.5 lakhs have to be separately reported. 
  • Make a separate ledger in your accounting software for B2C sales. This will help you immensely in reconciliation at the end of the quarter and also at the end of the year.
  • At the end of the month, the output tax should be the same in the accounts and in the 3B return.
  • At the end of the quarter, check that all the B2C invoices of the quarter and the B2B invoices of the last month are reported in the GSTR1.
  • Also, make sure that tax on reverse charge basis is paid by cash register only and separate entries are made in the accounting books for reverse charge liability and its adjustment.
  • At the end of the quarter, check the total of sales and all output taxes as per 3B, books of accounts, and a combination of IFFs and GSTR1 of that month. It should be the same in all three.

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Refund under Mistake of Law which is Time Bared under the Provisions of the Act

(ii) While reconciling yearly, you may take the following steps

  • Download all the GSTR1s, or IFFs and GSTR1s, 3Bs month-wise in an excel sheet
  • Make a table of sales (B2B and B2C separately) month-wise in an excel sheet both for GSTR1 and 3B. 
  • In the same sheet write the corresponding data from the accounting software.
  • Compare GSTR1 and 3B by finding variances and then find the reasons for differences.
  • The main reason for the difference in sale amount and output tax in the accounting data and GSTR1 is the issuance of credit notes, and that too, to unregistered dealers. This method is adopted by some taxpayers to reduce their sales and output liability. They issue credit notes randomly to unregistered dealers after receiving the payment from them. 
  • Sometimes some dealers issue some invoices to unregistered dealers of meager amounts, just to send the goods outstation. They even make amendments to those invoices according to their sale figures on the portal.
  • Compare 3B and your accounting data for sales, output tax for all types of taxes. Find variances and the reasons thereof.
  • Give special attention to September, March, and the month of filing the annual return (GSTR 9). Most of the adjustments are done in these months only.

 

Related Topic:

Form GSTR-2B under GST Scenario

 

GSTR 2B and ITC are available to us according to our accounting records

 

The department has given us the facility for reconciliation of ITC available, ITC to be reversed, and ITC adjustable against output tax liability. The amount of ITC available as per 2A does not differentiate between eligible and ineligible ITC. It also does not show whether tax has been paid for an invoice or not. To remove this anomaly, the department has brought auto-populated 2B. It even shows the information regarding those inputs on which the taxpayer has to pay tax on a reverse charge basis. It saves the taxpayer from levy of future penalties and interest. 

 

Related Topic:

Utilities for 2A Reconciliation

 

Various important points to remember

 

  • All the returns of a taxpayer are interlinked. Data given by the taxpayer in the monthly returns are consolidated and auto-populated in the form of annual return 9. Although it is editable, still it gives us the idea of what figures we have fed into the portal till now, and we can adjust accordingly. From past experience, one can say that if the input tax credit availed by the taxpayer is within 10% of the amount shown in the auto-populated return 9, then the chances of any notice are very remote.

 

  • All the returns filed by the various taxpayers are interlinked and the department has started matching invoices. Therefore one has to be very careful while filing returns as there should be no discrepancy between the amounts of an invoice or debit/credit note given by the supplier and the recipient. We can see that, on one hand, the department is easing our work by constant reconciliation but also leaving no stone unturned in catching the culprits who are taking ITC by unfair means.

 

  • The turnover limit for mandatory filing of the Audit report(reconciliation report) under 9C is above 5 crores. It had to be signed by a Chartered accountant. As per the decision in the 43 rd meeting of the GST council, now the need for signing by the Chartered accountant has been done away with. It can be self-attested now.

 

  • An amendment had been made in rule 36(4) of the CGST Rules,2017. As per the Press release of CBIC dated 02.05.2021 sub-rule (4) inserted in rule 36 of the Central Goods and Service Tax Rules, 2017, a taxpayer filing GSTR-3B can claim provisional Input Tax Credit (ITC) only to the extent of 5% of the eligible credit available in GSTR-2B (earlier, GSTR-2A was considered). Before the IFF, there was a scope that the invoice may not be reflected in the 2A of the recipient, but now there is no leeway given by the department as IFF has enabled seamless reporting of invoices. This 5% scope is only given to recipients in case their supplier has not filed his GSTR1 or not paid the tax on it.

 

Related Topic:

Reconciliation of GST audit report with an annual return

 

Conclusion

 

As technology is advancing, we are reaching a stage where every task, like issuing an invoice, claiming the ITC, and calculation of Output tax will be interlinked and real-time adjustments would be made just like fast tags from the applicable registers of the taxpayer. There is a race for reconciliation between the government and the taxpayer. The government is reconciling for more revenue and the taxpayer for getting the maximum possible ITC and reducing the output tax. But the main benefit is the plethora of data available with the government regarding various types of industries, which is inestimable, in this data-driven world.

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