Since the announcement of GST, there is a constant tussle going on between GST pros and others on its effects on the economic growth of the country. While the contention can go on, one thing that is truly revolutionary in the entire gig is the introduction of Input Tax Credit (ITC). The ability to claim ITC on your purchases, has made the reconciliation of your purchase data with your suppliers’ data extremely crucial. Though, the process is a carry forward of VAT and excise days, the stringent monitoring of ITC claim in GST regime calls for flawless reconciliation.
So, what is reconciliation? For beginners, reconciliation under GST is a process to match the data reported by all your suppliers of your procurements during a given period with your purchase data for that period. Your vendors upload their outward supplies through GSTR1 on GST system. The system aggregates all your inward supplies from the GSTR1 of all your suppliers and auto-populate it for you as GSTR2A. While the idea was to have the reconciled inward supplies data filed through GSTR2 within 5 days’ time, same was revoked in the initial days itself.
Since then, you as taxpayer need to reconcile the 2A with your purchase data before submitting your GSTR3B to claim ITC. GSTR3B is a consolidated report on your inward and outward supplies and the ITC calculations.
Sounds Simple, isn’t it! Not when you have hundreds of vendors with thousands of invoices being generated per month!
Why regular GST Reconciliation is critical?
- The Annual Return Form Filing cannot happen without reconciling all your purchase data with your suppliers’ data for the given period. Hence, it becomes extremely important to reconcile your data regularly to avoid last-minute hassles.
- The GST system does not allow the rectification of returns filed. Hence, if the data is not reconciled in time, it becomes difficult to claim or pay excess ITC, as the case may be, in subsequent months through amendments. For e.g., your vendors filed their GSTR 1 on the 10th of January 2019 for their December 2018 Outward Supplies. And your 2P (Purchase data) for December 2018 did not match with the GSTR-2A received from the portal. However, the reconciliation did not happen before the filing of GSTR-3B on 20th January 2019. In such a scenario, you cannot rectify the January GSTR 3B, but file an amendment in the next month, which is February 2019 for those invoices. This tedious process of amendment filing also makes reconciliation a very important step to be done regularly.
- The reconciliation process involves identifying mismatches, communicating with your vendors, sorting out differences, and reviewing the final data. Moreover, this has to happen at PAN level, for all your GSTINs, which may involve multiple vendors spread across geographies, multiple users and dependency on GST systems. Thus, a regular reconciliation process becomes critical.
The reconciliation process in itself is a time-consuming and tiring process. It involves:
- Follow up with all your suppliers and settle the mismatches, which could be
- Number of invoices filed
- Difference in Invoice details
- Total credit claimed
- Tally the filed data with your account books and invoices
- Modify the changes in the preceding filings
- Pay the difference in tax (along with interest levied, if any) or claim a refund (in case of over-taxation)
But, as they say it’s easier said than done. In real world, it would require the taxpayer to manually locate the mismatching invoice in tonnes of data for various GSTINs separately. Furthermore, the taxpayer would have to trace the errors through a colossal list of invoices (which can be as minute as faulty date entered) and aggregate the data vendor-wise. Then recurring communications needs to happen between multiple vendors to sort out the differences making it a backbreaking chore, nonetheless still being time-consuming and liable to further manual mishaps.
The advent of GSTR 2B
The government has been releasing regular advisories and making available the invoices uploaded by vendors, almost on a real-time basis through GSTR 2A. Further, with technological advancements such as E-invoicing, the GST returns and auto-drafted statements are now updated to include more information such as the IRN (Invoice Registration Number), the filing status of vendor, and much more. Additionally, the Government introduced a new GST Return – GSTR 2B in July 2020.
GSTR 2B is a static auto-drafted statement. Unlike GSTR 2A which gets updated as and when any invoice is uploaded by the vendor, GSTR 2B is a static statement that gets generated only after the return filing due date for GSTR1/IFF. GSTR 2B consists of invoices of only those vendors who have filed their returns, which makes it different from GSTR 2A, where invoices appear as soon as invoices are saved by the vendors.
To understand the impact of GSTR 2A and GSTR 2B on reconciliation and ITC computation, read this detailed ebook: A complete guide to ITC maximization using GSTR 2A and 2B
With IRIS Sapphire’s New and Advanced reconciliation, the process becomes easy, quick, and out of the ordinary. IRIS Sapphire frees you from the burden of manually matching your data with suppliers’ data, as you can bulk upload all your invoices across GSTINs and the smart reconciliation module automatically matches your purchase data with GSTR 2A from the portal to give you well-bucketed mismatch results. Review the mismatches and update directly to GSTN. You can even connect with your vendors from the portal itself and ask for rectifications. In addition to this, you can further go for user-triggered Advanced Reconciliation, which runs deeper algorithms to find matches across Financial Years, use fuzzy logic to contravene certain characters from the invoice no. match criteria and also compare invoices based on values.
IRIS Sapphire GST Reconciliation module has been built considering the requirements of various industries such as manufacturing, pharmaceuticals, automobiles etc., and has market-tested logics to reconcile the buyer-supplier data across various parameters to reduce manual intervention.