GST Reconciliation and Matching: Importance and Procedure

GST reconciliation and matching is essential for taxpayers to ensure accuracy and completeness of compliance reporting under the GST law. Your team often matches sales and purchase data between different returns as well as sales and purchase registers. The article attempts to explain the know-hows of GST reconciliation in detail. You can learn about-

• Meaning of GST reconciliation
• Reconciliation in pre-GST vs GST regime
• Why is GST reconciliation required
• How to do GST reconciliation?
• Challenges in GST reconciliation
• Solutions for automating GST reconciliation

What is GST reconciliation and matching?

In general, reconciliation means comparing two sets of data entries to identify any differences or variances. It is done to correct the unintentional errors earlier committed or any omissions.

Under taxation, reconciliation holds importance because it can give rise to tax short paid or not paid or excess paid as well. Following mismatches or differences can be noticed by taking up following matching and reconciliation exercise:

• Differences between the amount of input tax credit shown in GSTR- 3B and the GSTR-2B/GSTR 2A.
• Discrepancies in sales details between GSTR-3B and GSTR-1.
• From 1st October 2024, the differences in purchase documents between the Invoice Management System (IMS) and your purchase register.
• Unclaimed ITC or Excess ITC claims through a three way reconciliation - IMS vs GSTR-2B vs GSTR-3B.
• Until 31st Dec 2021, differences in the provisional credit as claimed under CGST Rule 36(4) and the actual credit that is claimable as per GSTR-2B across return periods.
• Differences between ITC values available in GSTR-2B versus ITC available in books of accounts for rigorous vendor follow-ups especially from 1st Jan 2022 after removing provisional ITC by virtue of Section 16(2)(aa).
• Differences in sales details between the books of accounts and GSTR-1 as auto-populated from the e-invoicing system.
• Differences in tax payable upon comparing the auto-populated GSTR-3B with the books of accounts.

Any differences noticed between these returns will lead to scrutiny notices being issued to the taxpayers or worse suspension of GST registration.

There can be several causes for mismatches. Popular ones are:

• The vendor has declared liability but credit is not availed in GST returns: Such credits should be availed at the earlier of due date of October returns or Annual returns.
• The vendor has not declared liability on supplies made but businesses have availed credit on such procurements in the GST returns: Businesses should follow up with the vendor to ensure that the liability is declared. Else, risks of such credits being disallowed may arise.
• Mismatch between liability declared by the vendor and credit availed: The reasons for differences should be identified and reconciled appropriately (e.g. by issuing debit notes/credit notes etc) at the earlier of, 30th November (filing the return under section 39 for the month of October* following the end of the financial year to which a particular invoice pertains), or the furnishing of the relevant annual return.
• Mistakes in the details furnished: There can be mismatch in the fields such as GSTIN of the supplier/recipient, number and date of the invoice/debit note etc. Make amendments in the GST returns of the month following the relevant month when mistakes were committed.

Reconciliation under GST although seems to be a simple process due to automation still consumes a lot of time and resources. One such example is that taxpayers are required to continuously communicate with vendors for making amendments in the returns filed by them or even to track ITC claims. 

It would not be tasking for businesses having a handful of transactions to monitor. However, in case you have thousands of invoices in a month, then even a single-digit percentile will be a significant volume. Therefore, one must reconcile the returns data on a regular basis under GST.

List of Data Reconciled Under GST 

Reconciliation pre-GST regime versus under GST regime

Reconciliation or matching sales and purchases details with returns are not new to any taxpayer. This has been prevalent in earlier VAT and excise regime too. During the pre-GST regime, the matching of data was a comparatively easier task for many business organisations, due to the familiarity and lower penal implications. 

If the tax department found some discrepancy in processing regular returns or annual return filing, only then would communications be sent to the taxpayer. Accordingly, further scrutiny and audits would be carried out by the authorities.

But under GST, this process has gained significance as the sanity of the input tax credit utilised by businesses is closely and regularly monitored by the GST authorities with the help of the online taxation system. Also, the taxpayers must regularly reconcile their data every month with the data declared by their vendors. It is necessary to claim accurate Input Tax Credit (ITC) and avoid GST registration being suspended due to any major mismatches between returns. The return filing and processing are semantically automated and the GST returns are inter-linked.

Why is GST Reconciliation required?

There are several reasons why reconciliation for GST returns data is required by businesses under GST.

• Taxpayers will be able to claim ITC only if the invoice is present as a part of their GSTR-2B. Due to this, taxpayers will now need to do a reconciliation wherever the ITC as per their purchase register and GSTR-2B data is not matching. Upto July 2020, taxpayers were comparing the GSTR-2A with purchase register. Due to the introduction of static return in form GSTR-2B, the monthly reconciliation has moved from GSTR-2A to GSTR-2B. However, for the yearly reconciliation, GSTR-2A which is dynamic return is preferred. But as an exception, one must still refer to GSTR-2A for TDS and TCS credits.
• GST returns are filed monthly or quarterly basis. Finally, after the financial year gets over, annual returns must be filed before the 31st December of subsequent FY. This would need consolidation of the data reported over the FY. In order to ensure the correctness of the declaration made and to avoid duplications, taxpayers must reconcile the data, then consolidate the values and make the declaration.
• Certain deadlines are stipulated in the GST laws for making amendments to GST returns data or to claim ITC. As per CGST Act, following actions must be taken, at the earlier of 30th November (filing the return under section 39 for the month of October* following the end of the financial year to which a particular invoice pertains), or the furnishing of the relevant annual return:
  • Claim eligible ITC against any invoice raised in a FY.
  • Any apportionment of ITC belonging to a FY, as eligible and ineligible not made earlier must be affected before the deadline.
  • Declare CDNs issued against any Invoices raised in a FY.
  • File Amendments to information reported in the GST Returns filed in a FY.

*due dates are subject to change as per notifications issued by the CBIC.

• With effect from 1st January 2021, if the tax officer may outrightly suspend GST registration of taxpayer and send show cause notice to cancel registration in form REG-31 if he finds any discrepancies:
  • On comparing details of outward supplies furnished in GSTR-1 versus GSTR 3B
  • On comparing details of inward supplies reflecting in the GSTR-2B when compared to GSTR-3B

How to do GST Reconciliation?

To start with, reconciliation must be done for every GSTIN and then must be considered at a PAN level. Reconciliation must be done across months for the entire FY. Not just that, but the amendments made to GST returns of the previous FY in the current FY must also be considered.

ITC is the most important component of your GST returns as it holds greater relevance when compared to any other component of the GST returns. The stage at which the sanctity of claims were checked in the previous tax regime is no longer the same as the current GST regime. The genuineness can be confirmed by a taxpayer now at a stage of filing GST returns(vis-a-vis with GSTR-2B or GSTR-2A and taking action). Earlier, tax authorities usually carry out this check while processing the returns.

Hence, the vendor-wise reconciliation must be done on a regular basis. If not done, taxpayers must consider doing it before filing GST returns of September of FY following the relevant FY. This will help identify and declare any unclaimed ITC within the deadline.

• Claim ITC belonging to a relevant FY, if not claimed earlier or reverse the ineligible ITC, if not identified and done earlier.
• Match Table of exports at 6A of GSTR-1 vis-a-vis Corresponding declaration in GSTR-3B
• Matching Table of exports at 6A of GSTR-1 vis-a-vis details of shipping bills submitted on ICEGATE
• Comparison between Annual Income Tax Return with Annual GST return

Declaration of Turnover from Business(at PAN level)

• Comparing Purchase register vis-a-vis GSTR-2B/2A for the entire FY
• Compare GSTR-1 vis-a-vis GSTR-3B
• To Compare the ITC in GSTR-3B vis-a-vis GSTR 2B/2A for the entire year

Major and common issues with GST reconciliation

The primary concerns of the taxpayer revolve around the following:

Am I:

• Being Tax compliant in accordance with GST and it’s claiming of ITC?
• At fault anywhere and hence the possibility of getting notices later?
• Missing out on possible working capital by claiming less than what I should be claiming?
• Who are the suppliers from whom I am getting the most amount of pain reconciling and how to make it easier for them and for myself?

The major issues with the reconciliation under GST between GST returns are:

• The invoice number that the purchaser has recorded does not match with the seller’s invoice received in GSTR-2B. Both follow a different convention.
• The purchaser may work in multiple states, and the seller has raised an invoice with another GSTIN/HQ GSTIN instead of the actual purchaser GSTIN. In this case it might not reflect completely at a GSTIN level.
• The invoice date by the purchaser doesn’t match with the seller. Difference because the date of recording the invoices is different at both places. Most purchasers are at fault here as they should’ve entered the same date as in the Sales invoice.
• The purchaser and supplier have recorded invoices in different return periods.
• Invoice value from Supplier and Purchaser differs by a minor value because both parties have different conventions of rounding off.
• The invoice value differs at supplier and purchaser’s end in case a CN/DN is issued and it fails to match in a recon row.
• When invoice number and date do not match while only the invoice value matches between two parties.
• There are multiple invoices between a purchaser and supplier where every invoice is of the same value at different dates and one of the parties has recorded invoices higher than the other. This happens in the case of regular fixed supply business.

One of the major challenges in doing a reconciliation is that both parties involved may have different nomenclature of storing the invoice numbers, while the implementation has a hard match around invoice number.

Tool/software to reconcile GST data faster and ensure 100% compliance

A technological solution which can solve for all of the major pain points discussed above. This will add a lot of value to the business owner. Certain features that one must find in a powerful reconciliation tool or system for matching and reconciling GST returns data are:

• The tool should be able to handle a massive amount of data.
• It should make it easy for the business owner to get data into the system for reconciliation and also take it back to his ERP post- GST reconciliation. A seamless integration here would help. It should be able to get the data into the reconciliation system from any kind of source – ERP, Excel, bill books, etc.,
• It should be able to provide deep reporting and insights which can help answer the pain points above.
• Overall, it should also make the whole process month over month seamless and largely efficient that the business owner does not feel a burden.
• It should allow for easy data sharing and collaboration between the business owner and his accountant(s).
• Given the GST rules might keep changing over time, the system should have the ability to evolve fast and in-line with changes by the government. This will abstract the real problem away from the business owner and make it still seamless for them.
• It must be extremely intelligent to handle any case of missing/wrong information. It can be wrong dates, wrong invoice numbers, missing items, wrong tax rate, wrong sale value and a lot more. The system should be able to provide the most effective reconciliation in all such scenarios.
• The system should be real-time and proactive. A seamless integration to bring the invoice for reconciliation and real-time automatic application of pre-defined rules will help.
• Proactive reminders and automatics to reduce human intervention will also make the system more efficient.

ClearGST offers the most powerful and Advanced Reconciliation Tool that comes packed with all the above discussed features and intelligence to auto-identify, match entries and assure 100% ITC claims.

Some of its tools are:

• GSTR-3B vs GSTR-1 vs Books Tax Comparison Report:
  It compares GSTR-3B and GSTR-1 with books. Gives a graphical representation for GSTR-3B vs GSTR-1 as well. This enables clients to understand the difference in the tax liability which helps clients avoid penalty or Notice from GSTN.
• IMS vs Purchase register: This report compares the purchase documents/invoices/credit-debit notes appearing on the IMS with the documents in your purchase register for the given period to give out any missing documents unreported by your vendor or incorrectly reported by your vendor.
• GSTR-3B vs GSTR-2B vs books ITC Comparison Report : 
  It compares GSTR-3B and GSTR-2B with books. Gives a graphical representation for GSTR-3B versus GSTR-2B as well. If ITC is claimed in excess, this can be identified here for each month. Thus ensuring that the clients are prepared for any notice that comes their way.
• GSTR-3B vs GSTR-2A and GSTR-2B ITC Comparison Report : 
  It compares GSTR-3B and GSTR-2A instantly across months to provide a graphical representation as well. If ITC is claimed in excess for the financial year, this can be identified here for each month or across months. Thus, it ensures that the clients are prepared for any notice that comes their way.
• Monthly Tax and ITC summary Report : 
  Month on Month view for the top management on the tax paid and ITC taken by each of the GSTINs.
• Advanced Reconciliation tool or Matching tool:
  • Download multi-month GSTR-2A in a click – Enabling all clients to start reconciliation of their 2A and purchases by pulling complete financial year’s 2A report.
     
  • Intelligent and Smart Rules – ClearTax Recon uses intelligent and smart rules for you to get suggestions on what could be reconciled without taking much effort in looking for. Helps you do recon faster and easier.
     
  • Claim Max ITC – Use ClearTax to claim 100% ITC.
     
  • Four buckets in ClearTax GST to identify data match, mismatch type :
    • Matched 
      Shows in this section when purchase invoices uploaded by you and GSTR-2A/GSTR-2B data downloaded from the GSTN portal matches based on default and suggestions from ClearTax
    • Mismatch In Values 
      Shows in this section when purchase invoices uploaded by you and GSTR-2A/GSTR-2B data downloaded from the GSTN portal doesn’t match which is highlighted in red on the software
    • Missing In My Data 
      Shows in this section when you have not uploaded purchase invoices but data is present on GSTR-2A/GSTR-2B side
    • Missing In Supplier Data (Not In GSTR-2A/GSTR-2B) My Data 
      Shows in this section when you have uploaded purchase invoices but data is not present on the GSTR-2A/ GSTR-2B side.

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