In today’s rapidly evolving business landscape, efficient management of Input Tax Credit (ITC) has become paramount for organizations seeking to optimize their financial operations. Technology and digital solutions have emerged as invaluable tools in streamlining the process of claiming and managing ITC, revolutionizing traditional approaches.  

This article explores the pivotal role played by technology in simplifying ITC management, from automated data extraction and real-time reconciliation to seamless integration with accounting systems, empowering businesses to unlock significant time and cost savings while ensuring compliance with tax regulations. 

Many facets of Input Tax Credit under GST

The evolution of Input Tax Credit (ITC) within the Goods and Services Tax (GST) system has witnessed several noteworthy changes since its inception. Initially, during the early stages of GST implementation, ITC was available based on provisional input tax claims which was later disabled. However, as the system matured, the concept of matching invoices between suppliers and recipients gained prominence.  

ITC claim has moved far beyond just computing the amount using books of accounts and purchase invoices. It has become an integral part of several business functions and not limited for the purpose of tax compliance. For accurate and maximized ITC, business need to: 

• Ensure transactions are recorded in a proper and timely manner in the purchase register. Further identifying ITC eligibility as per GST rules should be provisioned for at the transaction level so that while preparing ITC calculation the information is readily available in the accounting systems 
• For ITC, reconciling books or purchase register with Government records is necessary. This requires comparing the actual invoices, taking stock at party level so that invoice, amendment and credit and debit notes are settled in toto, issues found in supplier invoices need to be communicated and corrected in time and chasing suppliers to get missing invoices uploaded. 
• GST rules and system have now evolved into a stage where the transacting parties i.e. the buyer and the seller need to work together to keep their compliances clean, timely and accurate 
• Once ITC is claimed, the business still needs to have a view of allied business processes such as payments to the vendors. There could be impact on ITC claimed in earlier period and hence might need reversal or ITC reversed earlier could be now available to reclaim.  

No matter if the volume of invoices is less or more, these tasks are to be done month on month, or sometimes on a real time basis to ensure ITC doesn’t get missed or pushed to the next period. Well defined internal processes and solutions to help you reconcile purchase data, can assist in narrowing down the discrepancies and help to maximize ITC claim. 

The Role of Technology in ITC Management

Automated Data Extraction 

Starting with the self-purchase register, the more automated means to get data into the systems the better. Be it from an e-invoice (the highest form of digital and standard data as of now) or using AI-ML tools to extract data from PDF and paper formats, tax tech solutions have evolved to record cleaner and faster data at source. 

Technology driven reconciliation

Next comes the task of comparing your own ledger with the government ledger. Technology driven reconciliation helps to classify the comparison results into actionable categories i.e. invoices that need correction, vendors that need follow up, invoices not booked and so on. Further, finetuning results based on business rules and tolerances makes life easier for indirect taxation teams who otherwise are stuck deep down in spreadsheets. Read more about GST Reconciliation for IDT teams here. 

Orchestration of reconciliation activities

There are several steps involved in ITC computation from uploading data to fetching GSTR 2A and GSTR 2B from GST system, applying rules to match data and so on. AI-based schedulers can assist businesses in configuring these step-by-step activities to run on specified dates and triggers. This automation not only saves time but also lets the team focus on the critical matters as mundane tasks are handled by the tech. 

 Stay informed and be proactive

Technology has made it possible to have access to the right information at the right time. Real-time reconciliation and vendors who need follow up can be effectively used by taxation teams to take corrective and preventive actions. Businesses can maximize their ITC utilization and improve overall operational efficiency. 

Benefits of Implementing Tax Technology Solutions

Implementing tax technology solutions for ITC management can have significant benefits for businesses. By automating routine tasks, managing exceptions, and staying updated with real-time data, companies can streamline their operations and improve overall efficiency. Some of the key benefits include: 

1. Time and Cost Savings: Tax technology solutions enable businesses to automate time-consuming tasks, reducing the need for manual intervention and saving valuable resources. This results in significant time and cost savings for the organization. 
2. Improved Cash Flow: By accurately recording and reconciling purchase invoices, businesses can optimize their cash flow and avoid blocked funds. This ensures that ITC is claimed and utilized effectively, ultimately increasing the bottom line. 
3. Enhanced Compliance: Tax technology solutions help businesses maintain clean, timely, and accurate compliance with GST regulations. By automating the reconciliation process and monitoring vendor compliance, organizations can avoid penalties and interest charges. 
4. Increased Efficiency and Productivity: By eliminating manual data entry and streamlining the invoicing process, tax technology solutions enhance efficiency and productivity. This allows tax and procurement teams to focus on strategic activities rather than getting stuck in spreadsheets. 

To summarize, TaxTech and digital first solutions help companies to automate routine tasks, manage by exceptions and stay updated.

The goal of achieving maximum and accurate ITC is challenging, yet manageable by using the right strategies and technology solutions. Taxpayers should carefully weigh the pros and cons and go ahead with a solution or rather a GST Compliance partner who can help them to meet the objective, effectively and efficiently. Availability of ITC has a direct impact on cash outflow for the taxpayer. Hence, more the ITC available the better.  

Digital solutions enable businesses to automate the identification, verification, and matching of eligible input tax invoices, minimizing errors and reducing manual efforts. Additionally, technology-driven platforms and systems provide real-time visibility into ITC balances, ensuring businesses have up-to-date information to make informed financial decisions.  

IRIS GST Software is India’s Best GST Return Filing, Reconciliation Software that ensures 100% ITC Claim

As a registered taxpayer, reconciling purchase invoices with the supplier uploaded invoices on the GST system is a critical activity as it determines the ITC claim. Further, the Government issues legal notices to taxpayers for discrepancies in the ITC claimed in GSTR 3B and the amount as per supplier uploaded details. IRIS GST Software’s Smart Reconciliation comes in handy for managing the reconciliation tasks in a timely, efficient and easy manner. Also, taxpayers can simplify vendor compliance, get 2A and 2B reports among other factors that aid in the goal of ITC maximization. 

Feature Highlights

Bulk Data upload facility – It will help you to upload data for multiple GSTINs in one go
2P Summary – Provides a summary of uploaded data. You can quickly check your uploaded data with the count of invoices getting considered for reconciliation
Bulk download of GSTR 2A – For multiple periods, you can send ’Get GSTR 2A data’ request in one go
Smart reconciliation – It auto-runs on your data and provides you the reconciliation results with summary
Advanced reconciliation – It helps you to extend the scope of comparison between data that is in the supplier-only and purchaser-only category. Some rules that help in better reconciliation are : 

• Checking invoices across the financial years 
• Fuzzy invoice no. logic 
• Checking exact values ignoring invoice number 
• Checking invoices within the tolerance provided by you 

Monthly reconciliation results with monthly GSTR 2A report – Helps you to decide monthly ITC and how much you can claim as provisional ITC 

Net vendor summary – It gives you a glance reconciliation status for each vendor 

PAN level reports and GSTIN level reports – It will help you to analyze in detail of your purchaser-only and supplier-only invoices Send Mail – By using this feature you can easily communicate discrepancies to your vendor