GST reconciliation is a huge part of the GST returns and a major factor governing the ITC claims. Accuracy of your claims depends on how well you have reconciled all the differences and mismatches in invoices. Let us understand the reasons why mismatches occur in GST data.
What is GSTR 2A and how is it produced on GSTN
GSTR 2A is purchase related auto-generated GST return form for each business, on the GSTN portal.
GSTR 2A is populated based on the sales return i.e. GSTR 1 filed by the seller. When the seller files GSTR-1, these sales get captured in GSTR 2A by the GSTN portal and are available to the purchaser to match his purchases as against the sales made by the seller.
What is GSTR 2A mismatch
Many times, in a month, the seller might not record his sales in GSTR 1, although the purchaser has recorded these as purchases or vice versa. There occurs a mismatch here, between the records of the seller and the purchaser.
There can be many reasons why these mismatches occur like,
- Invoicing date mismatch – when the goods are dispatched at the month end and invoices are generated later then there is a date mismatch between the day when purchases are made and seller enters them in GSTR 1.
- Wrong GSTIN – many times the supplier might enter a wrong GSTIN number of the recipient of goods. This mostly happens due to manual data entry in absence of proper ERP systems that have return filing interfaces.
- Invoice number mismatch – a common error is invoice number not matching with that of the supplier due to data entry errors or human error.
- Mismatch in invoice/tax value and place of supply – these values may ne different due to errors in calculation of amount of taxes.
- Credit/debit note mismatches – many times when a purchase return transaction occurs for any reason the purchaser might record the invoice at full value of sale and later raise a credit note separately whereas the seller will record the invoice at net value. E.g. when sales are for Rs 200 and Rs 20 is the return value then the purchaser recording invoice at Rs 200 and later recording a credit note of Rs 20 whereas seller recording sale invoice of Rs 180. This will create a mismatch in the value of sale in the invoices.
- Goods in transit – when goods are dispatched but not yet received by the recipient due to long distances. In this case the supplier might enter these in his GSTR 1 but recipient won’t record them as purchases unless he receives them.
- Time lag between receiving goods and creating an invoice for the same – many times even when the recipient receives the goods he does not record them as purchase since invoicing department receives the records only after 20-25 days in some cases.
- GSTR 1 of the supplier not submitted or filed – in both the cases if the GSTR 1 is not submitted or filed it will lead to mismatch in the records since the purchaser will not find a matching sale entry.
Impact of mismatches on returns and need for Reconciliation for ITC
Impact of these mismatches is that the accurate amount of GST liability cannot be calculated since the tax paid on purchases needs to be deducted from the tax charged and collected on sales and this gives you the actual Input Tax Credit amount that needs to be claimed. Hence it is very essential to calculate the exact amount of tax liability and ITC claims by making sure that GSTR 2A matches with the sellers’ GSTR 1 and GSTR 3B filed monthly.
However, there is a condition here. Your purchases must match with GSTR 2A auto-generated by GSTN. This will require businesses to make sure that their vendors have filed all the purchases in their GSTR 1 forms.
“ITC Claims were allowed earlier provided business enterprises had generated invoice, paid taxes and filed returns. However, in the recent order the CBIC has mandated that ITC Claims would have to be matched with GSTR 2A.”
Mandate from CBIC
The first step here is to identify the mismatches in the records and then to make sure that these records are up-to-date. This will require sophisticated systems that may identify the mismatches in the records by comparing the purchases of a business with GSTR 2A.
Once these are identified, businesses can contact and liaise with vendors to correct the records. The process of reconciliation can be tedious one with several follow ups with vendors and chances of manual errors being high.
Read the Part II of this article to understand how Cygnet can help ease all the reconciliation worries for you.