The advent of GST in the country has underscored the importance of tax technology. Multiple ASP and GSP solutions are rolled out with numerous features to ease GST compliances for taxpayers with the right technology. Right from the extraction of data from ERP systems to uploading it on the GSTN portal in the return formats, the entire data transition is automated by such solutions. It was also anticipated the entire GST compliances will be automated to an extent that no or minimal human intervention would be required. After four years of the regime, innumerable changes from the Govt. and the usage of solutions, it is a good time to reflect on whether we have reached a stage where the simplicity that was promised has been accomplished. In this blog, we wish to discuss only one aspect of GST compliances i.e., the Input Tax Credit (ITC) reconciliations and to what extent is manual intervention still required in the said activity.
ITC reconciliations is a crucial monthly and annual activity for all taxpayers under GST. Rule 36(4) of CGST Rules, 2017, permits a taxpayer to avail ITC only to the extent of 105% of the ITC reflected in its GSTR 2A. Therefore, any taxpayer must reconcile the ITC as per the purchase register and ITC as per GSTR 2A. Accordingly, the reconciled ITC can be availed by the taxpayer in its GSTR 3B.
Most of the ASP/ GSP solutions have an ITC reconciliation feature in them whereby when a user uploads the purchase register, the solution fetches GSTR 2A from the GSTN portal and carries out a reconciliation. Subsequently, a reconciliation report is provided to the taxpayer, which contains reconciled and non-reconciled transactions basis which ITC can be claimed. The non-reconciled ITC is further divided into various baskets such as mismatched, matched by fuzzy logic, logical match, etc., that gives the user an extensive automated report that can be further worked upon. Basis such a report, the taxpayer can take relevant actions. While this is the sum and substance of the ITC reconciliation on an ASP/GSP solution, there are other aspects that require manual intervention. The same is summarized below:
- While sanitizing the data, it may be possible that the purchase register has some critical values missing, such as GSTIN of the supplier, break up of tax in CGST and SGST portion, invoice number, etc. It requires human effort to put all details in place and make the purchase register complete in all respects.
- The purchase register would also have certain out-of-scope transactions such as reverse charge transactions. Appropriate adjustment needs to be done manually for these transactions as they do not appear in GSTR 2A except received from registered person.
- The reconciliation reports generated by ASP/GSP rely on fuzzy logics. Therefore, certain matches remain unmatched unless human intervention is done at an appropriate time. This could include slight variations in invoice numbers, document date format, etc. For eg. for an invoice number TPT/O123 (“alphabet O”) in the purchase register, there could be a corresponding invoice in 2A with the number TPT/0123 (“numeric 0”). The fuzzy logic will throw an error and would not match the invoice. It takes human intelligence to figure out such cases and resolve errors.
- The purpose of ITC reconciliation is to claim appropriate ITC in GSTR 3B. However, once the reconciliation report is ready, there is yet another activity that needs to be performed. This includes reconciling the ITC with credit claimed in GSTR 3B (there could be differences on account of ineligible credit, RCM and import transactions) and the purchase register. One needs to have a track of the ITC available and the ITC finally claimed.
- Every month there will be unreconciled credit in the purchase register and in GSTR 2A which shall be carried forward to the next month. This incremental reconciliation is an added responsibility that requires manual interference. A track needs to be maintained, so that excess credit is not claimed and no credit is lost out.
- Certain organizations only account for eligible ITC in their credit ledgers. Ineligible ITC is expensed out right from the invoice booking stage. In such cases, it may so happen that if an invoice contains partial eligible credit and partial ineligible credit, the tax amount in GSTR2A and the purchase register will not match. Exceptional situations like these are common and hence a complete reliance on technology is not possible.
Robots are man-made. While technology is a must-have in a tax function, it will still need a human touch to ensure the relevant actions are taken for achieving the required output. The GST law is still evolving and therefore, managed services are the need of the hour. Nonetheless, we can hope that a couple of years down the line, the systems and processes are streamlined in a manner where technology will need lesser human intervention to handle GST compliances.