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All about Adjustment of Input Tax Credit under GST

Updated on :  

08 min read.

All registered taxpayers under GST are required to file an annual return in Form GSTR-9 irrespective of the turnover of an entity. Filing GSTR-1 and GSTR-3B is mandatory before filing the annual return. The annual return is a compilation of data filled in GSTR-1 and GSTR-3B.

Even if a taxpayer identifies that certain data is incorrect in GSTR-1/GSTR-3B, the same cannot be corrected in GSTR-9. The intent of the form is just the aggregation of data and not rectification. However, the books of accounts of an entity should be in line with the returns filed. This can be done by way of reconciliation.


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Need for reconciliation of returns with the books of accounts

  • To avoid missing out on claiming ITC: Many organisations sometimes omit to record invoices they receive. This leads to loss of ITC and ultimately paying excess tax. A timely reconciliation process helps to ensure that all available ITC is availed.
  • Ensuring strong internal control: Matching suppliers returns with the books of accounts represents strong internal control within the organisation. Reconciliation ensures timely correction of mismatches in the books of accounts of the taxpayer.
  • As a part of the audit procedure: An auditor can easily match the inward supplies as per the books of accounts and GSTR-2B or GSTR-2A and ask the taxpayers to reconcile the same in case of mismatches. Thus, it is advisable on the part of taxpayers to reconcile the same on a monthly basis and keep the data available for audit.
  • To avoid Notices from the Tax Department: Any mismatches may lead to receiving Notices from the Tax Department which may lead to the payment of penalties. To avoid the same, monthly reconciliation and appropriate action on the mismatch of data is a must.

What should be done in case ‘Excess/Less’ credit in GSTR-2B or GSTR-2A as compared to GSTR-3B?

Under the GST Law, it has become very important to reconcile the returns
GSTR-2B or GSTR-2A and GSTR-3B, as the taxpayer can claim ITC on a particular invoice only if that invoice is present in the
GSTR-2B or GSTR-2A. This matching concept helps the Department in verifying whether all transactions which occurred in a particular time period are correctly recorded and posted in the summary return GSTR-3B. The table below explains the action points in case of mismatches:

Sr.No.Credit Return CaseAction
1.Excess credit is declaredGSTR-2A ITC is not claimed by the recipient in GSTR-3B.He should claim the missing ITC in the month in which discrepancy is identified.
The supplier has shown excess outward supplies in GSTR-1.He should rectify the same in GSTR-1 of the month in which discrepancy is identified.
2.Less credit is declaredGSTR-2AThe supplier failed to upload the invoice.The supplier is asked to rectify the same in the return of the month in which the discrepancy is identified. If the supplier fails to do so, the ITC claimed by the recipient gets added to the output tax liability in the next month.
Duplicate credit claimed by the recipient in GSTR-3B.If the recipient has already corrected the same, no further action is required. If not, the excess ITC claimed is added to the output tax liability of next month.

Note: In both the above cases, the difference between ITC details from GSTR-2A and  GSTR-3B needs to be explained in GSTR-9 under the following 2 heads:

  • Table 8E: ITC available but not availed
  • Table 8F: ITC available but ineligible

What should be done in case the credit as per GSTR-2B/3B does not match with the books of accounts?

In this case, a taxpayer needs to perform the following two reconciliations:

A reconciliation between GSTR-2B2A and books of accounts

This reconciliation requires dynamic data as the data filled in GSTR-2A/2B is as provided by its vendors. Every time a single vendor files GSTR-1 or makes any amendment to it, the data changes and reconciliation needs to be done again.

Step 1: Identify the invoices recorded only in the books of accounts and not the GST portal (GSTR-2A) as well as the invoices available on the portal i.e GSTR-2A and not recorded in books.

Step 2: This invoice mismatch may happen due to any of the following reasons:

  1. The supplier has failed to upload invoice details in GSTR-1, but the recipient has recorded the same in its books of accounts and claimed the ITC in GSTR-3B at a later month when the supplier uploads invoice.
  2. Duplication of ITC claim by the recipient in their books of accounts.
  3. Failure on the part of the supplier to file GSTR-1 or providing the wrong GSTIN while filing GSTR-1.
  4. Due to a timing difference in recording of an invoice.

Step 3: Taking action on such mismatches as mentioned in the above Table.

A reconciliation between GSTR-3B and books of accounts

This reconciliation requires static data as the same needs to be prepared and recorded by the organisation itself.

Step 1: Check whether all GST challans paid by the organisation are correctly recorded in the respective Payables ledger.

Step 2: Match ITC claimed in GSTR-3B with that recorded in the books of accounts. Pass an adjustment entry in case of mismatch.

Step 3: Match GST output claimed in GSTR-3B with that recorded in the books of accounts. Pass an adjustment entry in case of mismatch.

Step 4: Match the Electronic Credit Ledger with the Trial Balance.

Step 5: Any errors in GSTR-3B need to be rectified in subsequent months return.  

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