ITC Mismatch in GSTR-2B vs GSTR-3B: How to Perform GSTR-2B Reconciliation with GSTR-3B

When it comes to GST compliance, understanding the nuances of GSTR 2B vs GSTR 3B and performing accurate GSTR 2B reconciliation with your GSTR-3B and purchase register is crucial.

Meaning of GSTR-2B vs GSTR-3B

GSTR-2B is a system-generated statement that provides details of all inward supplies or purchases, including information on eligible and ineligible Input Tax Credit (ITC) for a tax period. It acts as a verification tool, being auto-populated based on the GSTR-1, GSTR-5, and GSTR-6 filed by suppliers.

On the other hand, GSTR-3B is a self-declared, monthly return that summarises a business's outward supplies, ITC claims, and total tax liability for that month. While GSTR-2B serves as a reference for available ITC, GSTR-3B is crucial for reporting monthly tax liabilities. 

Businesses must reconcile these two statements frequently, prior to filing the GSTR-3B, to ensure the accuracy of their ITC claims. Regular reconciliation helps avoid legal issues, financial losses, and penalties by flagging any discrepancies between the claimed and available ITC. This process is essential for maintaining compliance with GST norms and ensuring financial accuracy.

Importance of GSTR-2B Reconciliation with GSTR-3B and Purchase Register

The GSTR-2B and GSTR-3B reconciliation is essential for many reasons. It helps businesses make sure that they are claiming the correct input tax credits (ITC), thereby reducing the risk of legal issues, such as penalties or the cancellation of their GST registration. Some of the key reasons for GSTR-2B vs GSTR-3B reconciliation include-

• Adherence to Rule 36(4): By aligning the GSTR-2B vs GSTR-3B statements, businesses can also seamlessly adhere to Rule 36(4) of the Central Goods and Services Tax (CGST) rules, thereby minimising the risk of future legal repercussions.
• Avoidance of demand notices: Taxpayers and professionals are concerned about notices they have received from the GST department. These notices question if there are any mismatches between the ITC claimed in the GSTR-3B versus the ITC available in the GSTR-2B. If a taxpayer is unable to provide justifiable reasons, they will be required to pay the differences with interest and penalties. 
• Avoidance of scrutiny: In light of the new CGST Rule 88D, the government has initiated the automated scrutiny of GST returns. Taxpayers are receiving automated system-issued notifications in Form DRC-01C in cases where the ITC claimed in the GSTR-3B exceeds the prescribed available ITC amount in the GSTR-2B by a certain percentage or amount. Failure to reply to an intimation in DRC-01C could result in the taxpayer’s GSTR-1 filing or IFF (Invoice Furnishing Facility) getting blocked for the next tax period. It may also attract demand and recovery provisions under Sections 73 or 74 of the CGST Act.
• Minimising GST cash outflow and impact to working capital: If input tax credit is short-claimed, it means that the a higher proportion of the GST liability is unnecessarily paid out in cash, thereby impacting a business's cash outflow and working capital.

How to do a GSTR-2B Reconciliation with the GSTR-3B

To perform a GSTR-2B reconciliation, follow these simple steps:

1. Download the GSTR-2B data: Start by logging in to the GST portal and downloading the auto-generated GSTR-2B statement for a tax period.
2. Download the draft GSTR-3B statement: Next, download the auto-drafted GSTR-3B return from the GST portal for the same tax period.
3. Identify and rectify differences: Compare the two to identify any ITC mismatches.

Using an automated GST reconciliation tool will help identify discrepancies here with 100% accuracy as against undertaking this exercise manually. 

Reasons for ITC Differences in GSTR-2B vs GSTR-3B

The reasons for ITC discrepancies in GSTR 2B vs GSTR 3B could include the following cases (but not be limited to)- 

• The supplier has wrongly furnished the figures due to clerical errors or errors with the rate of GST.
• The supplier has reported the translation incorrectly as a business-to-consumer (B2C) transaction instead of a business-to-business (B2B) transaction.
• The supplier has incorrectly furnished an inter-state transaction as an intra-state or vice versa.
• The ITC could relate to import of goods, hence not appearing in the GSTR-2B.
• The ITC could relate to inward supplies from an SEZ, which does not appear in the GSTR-2B.

Actions after GSTR-2B vs GSTR-3B

Once the reconciliation is complete, the next step involves rectifying the mismatches. This may include contacting suppliers for corrections in their GSTR-1 or adjusting your GSTR-3B to reflect accurate ITC claims.

Using a good GST solution that has an inbuilt vendor communication tool will greatly simplify the process of rectifying discrepancies in your vendor's returns.

Consequences of Not Doing GSTR-2B Reconciliation with GSTR-3B

Failure to reconcile GSTR-2B with GSTR-3B can lead to penalties, notices, and legal ramifications from the tax department. To better understand the implications of mismatches between the GSTR-2B and GSTR-3B, as well as the specifics of Rule 88D under the CGST Act, you can refer to this detailed guide.

Frequently Asked Questions

How often should I reconcile GSTR-2B and GSTR-3B?

You should perform reconciliation every month, immediately after the GSTR-2B auto-draft is available and before filing your GSTR-3B. This ensures you capture all discrepancies and can make adjustments in time.

Can I edit system-generated GSTR-3B?

While you can technically edit the system-generated GSTR-3B, doing so might trigger a warning if the variance in ITC is above 10%. This could potentially lead to complications with the tax department.

What is Reverse Charge Mechanism (RCM) and how does it impact GSTR-2B vs GSTR-3B?

RCM is when the tax liability shifts from the supplier to the receiver. This can create discrepancies in GSTR 2B vs GSTR 3B as RCM-related purchases may not be auto-populated in system-generated summaries, leading to potential mismatches.