If done correctly, you can claim GST Input Tax Credit without having your credit blocked. This article focuses on ITC claims in GST and their reliance on the ITC reconciliation process. Claiming GST Input Tax Credit on purchases can be difficult, and obtaining only the eligible ITC can be tricky. However, claiming ITC can be a simple task if proper guidelines are followed and GST provisions are followed.
With flawless reconciliations, manual error minimization, and timely follow-ups with your suppliers, you can claim the maximum eligible ITC for the month while keeping your working capital unblocked.
Role of Reconciliation in 100% ITC Claims
Reconciliation under GST entails comparing outward supplies and purchase records from various GST returns such as GSTR-1, GSTR-2A, GSTR-2B, GSTR-3B, GSTR-9, GSTR-9C, and Books of Accounts. These reconciliations ensure that your GST returns are consistent with the GST laws, and that you pay the tax that is equal to your outward tax liability, no less and no more.
Furthermore, they ensure a thorough examination of all GST returns for irregularities, resulting in a flawless GST return and a smooth claim for Input Tax Credit under GST.
All of these reconciliations are equally important in claiming an eligible and 100% Input Tax Credit for taxes paid on the taxpayer’s purchases. GSTR 2B Reconciliation software outputs of a successful reconciliation. Following a successful reconciliation between two GST data sets, the reconciliation report contains the following outputs:
Matching Entries:
When two GST data sets are compared head-to-head, these entries are valid.
Mismatching Entries:
These entries indicate that some of the fields’ values are incorrect. The tax rate, invoice date, or invoice number, for example, do not match between two sets of data such as GSTR-2B and Purchase Record.
Entries Missing in the Books:
These entries appear in GST returns but are not present in the taxpayer’s purchase records.
Missing Entries in GSTR 2A/2B:
These entries can be found in the taxpayer’s purchase records, but they are not found in the taxpayer’s monthly auto-generated GSTR-2A or GSTR-2B. This is primarily due to your suppliers’ incorrect GSTR 1 return filing, which reduces your GST Input Credit claim for that month.
As a result, businesses must perform ITC reconciliation to identify only the ITCs that are eligible. It is the taxpayers’ responsibility to act immediately on all mismatched entries and correct them as soon as possible. Furthermore, taxpayers must establish a communication channel between GST defaulting suppliers and their clerical team in order to notify these vendors of the irregularity as soon as possible.
If the reconciliation operation is not performed on a regular basis, your company will forfeit the Input Credit and be required to pay your outward GST liabilities in cash. This will deplete the company’s working capital, resulting in a cash shortage. To carry out all of these activities, the company must have efficient GSTR 2B reconciliation software.
The Function of GSTR 2B Reconciliation with Purchase Records
The data from the GSTR-2B is always used for ITC reconciliation. As a result, understanding the role of GSTR-2B in the ITC reconciliation process is critical. Details of your purchases will appear in your GSTR-2B ONLY if your Supplier has filed his GSTR-1 correctly and on time for the purchase.
It is critical that businesses identify their eligible ITC based on a reconciliation of their Purchase records and the monthly auto-generated GSTR-2B.
- The best method for identifying gaps in your GSTR-2B statement is to compare it to your Purchase Records or Books of Accounts.
- This is the most effective method for determining which transactions in your GSTR-2B statement are missing ITC.
- For fewer transactions, manual reconciliation is an option. But what if the volume of transactions is large?
- The large volume of transactions will undoubtedly be a challenge, and the clerical team will become engrossed in these reconciliations, wasting a significant amount of business time and resources.
The Function of GSTR 2B Reconciliation with GSTR 3B
The seller submits his GSTR-1, which is reflected on the recipient’s GSTR-2A and GSTR-2B. These are the relatively frequent returns submitted by the taxpayer that encompasses all of the details for that specific period, such as outward supply, inward supply, tax amount, interest or penalty, if any, and so on.
- The elimination of the cascading effect is a critical aspect of GST.
- A registered taxpayer may claim an ITC for GST paid on inward supplies.
- GSTR2A details the inward supplies made.
- GSTR-2A will display the details uploaded by the supplier, whereas GSTR-3B requires the taxpayer to upload the details in order to claim ITC for the specific tax period.
- Only ITC found in the month’s GSTR-2B will be considered eligible.
A perfectly balanced reconciliation between your GSTR-2B statement and your GSTR-3B return ensures that there are no discrepancies between the Input Credit claimed and the actual Input Credit available to you on the GSTR-2B statement. As a result, reconciling GSTR-3B vs 2B is critical for ensuring complete GST compliance.
Manual ITC Reconciliation Can Be Harmful to Your Business
Among the most serious issues that arises as a result of manual reconciliation under GST is a lack of standardisation for large enterprises. Many small and medium-sized businesses in India still prefer manual reconciliation to automated reconciliation. However, as the number of invoices increases, reconciling your Purchase Registers against your GSTR-2B becomes more difficult. As a result, your company will no longer be eligible for Input Tax Credit under GST.
Some of the direct risks that your company faces when performing manual GST reconciliation are as follows:
- The possibility of an error being introduced into your GSTR 9 annual return.
- Mismatches between invoice numbers in your Purchase register and invoice numbers received from your supplier, as reflected in the FORM GSTR-2B.
- Invoice date mismatch because the dates of recording invoices on the seller’s and purchaser’s sides are different.
- When the number of invoices increases, the clerical team must devote a significant amount of time to reconcile each invoice received from the supplier and verify its validity.
- Using automated GSTR-2B reconciliation software to automate your GSTR-2B vs Purchase Records reconciliation will save you time and provide you with a comprehensive report highlighting the statement’s mismatches.
To make your ITC compliance journey as smooth and efficient as possible, subscribe to Finsights, the Best GSTR-2A/2B Reconciliation Tool, which allows you to analyse your compliance status, automates reconciliation, and helps you track your suppliers’ compliance as well. Reduce the time it takes to manually reconcile to minutes and ensure you never miss out on any deserved ITC with Finsights.
