GST ITC Reconciliation

GST ITC Reconciliation

What is GSTR-2A?

GSTR-2A is a system-generated document that shows the details of purchases/inward supplies of the buyer. This is an auto-generated statement that provides near-to-real time visibility of inward supplies as and when the supplier details the invoices in his GSTR-1. In also considers the GSTR-5 and GSTR-6 to auto-populate the inward supplies and input tax credit (ITC) details.
Form GSTR 2A is not a return. It is simply a read-only document that allows viewing all invoices uploaded by your suppliers. This is a dynamic report which gets updated as when the suppliers upload the invoices related to goods or services sold to you. It’s a critical statement that defines the amount of ITC you will be eligible to claim in your monthly or quarterly GSTR-3B return. Because, as buyer, you will be allowed to claim ITC only if it is reflected in the GSTR-2A/2B. So, GSTR-2B is an auto-generated statement like GSTR-2A; the only change is that it is generated monthly and remains static.

What is GSTR–2A reconciliation?

The reconciliation process involves matching or checking the data that has been uploaded by your suppliers with that of your purchase data in your books. As the supplier’s uploaded information is available to you in GSTR-2A/2B, you can use that statement and then compare it with your books to check for any discrepancies. This shows you if every transaction that has taken place between the two of you has been accurately recorded or if any invoices are missing. Any data that is missing can cause future troubles and make you liable to pay penalties in the form of interest and other fees as specified by the GST authority.

Importance of GSTR-2A/2B for businesses

On January 1, 2022, the Finance Ministry launched the 100% invoice matching criteria and made it mandatory for all businesses. Essentially, any business that wishes to claim the ITC will have to show 100% parity between their filed returns and supporting invoices. In simple words, you will only be able to claim ITC if the concerned invoice is present in GSTR-2A/GSTR2B. Here are a few reasons why GSTR-2A/2B reconciliation is important for businesses.

Loss of ITC

If the supplier has failed to upload an invoice, then it means the taxpayer cannot claim ITC because ITC will be allowed only on the reflecting on GSTR-2A/GSTR-2B statement. This will have a major impact on the working capital especially if this is done constantly by the supplier where he does not upload the invoices despite constant reminders for the same. It may not seem like a lot in the beginning but for MSMEs, this can make a huge difference because they need capital for running the business smoothly without hassles. ITC reconciliation ensures this loss of ITC does not occur and the taxpayer can claim the correct ITC on time.

Claiming excess credit/Incorrect values

The GSTR 2A/GSTR 2B reconciliation will prevent you from claiming ITC on the invoices that are reported in the GSTR-2A or GSTR-2B. For example, you may claim ITC on all the inward supplies in GSTR-3B return but, there are few that are not uploaded by the supplier. This results in an excess claim and may attract interest and penalties. There are situations where the invoices are uploaded, but the values are incorrect. Reconciling helps you identify such invoices and get those ratified with the supplier.

Notice from department

The GST authority will send notices to the taxpayer if there is a mismatch between GSTR-2A/GSTR-2B and GSTR-3B with ITC. Without GSTR - 2A reconciliation or 2B, the mismatch cannot be caught on time by the taxpayer thereby causing trouble in the future. With the help of reconciliation, the taxpayer will be claiming the correct ITC and thereby not attract such problems with the authorities. The notice asks the taxpayer about the reason behind the mismatch. If any documents are missing or the taxpayer cannot verify the same within the stipulated time, they will face penalties and may have to reverse along with interest.

Avoid duplicate or ineligible ITC

The GSTR - 2A reconciliation prevents ineligible or duplicate ITC claims. There are prescribed guidelines that need to be fulfilled to be eligible to claim ITC. Similarly, for certain notified supplies, products or services, ITC claim is blocked, meaning you cannot claim on such supplies. For example, ITC can not be claimed for those purchases used for making exempt supplies, something that is consumed for personal use etc., GSTR-2B/GSTR-2A reconciliation helps you to avoid ITC claims on ineligible supplies. It is also possible that you may claim tax credit on the same invoice multiple times, resulting in excess credit.

Identify habitual defaulter suppliers

The GSTR - 2A reconciliation will uncover the habitual defaulters who either make mistakes or fail to upload the invoices in their GSTR-1 portal. If a taxpayer finds such suppliers, it is advisable to take action depending on how many times they have made the mistakes and the gravity of those mistakes. For example, one way to tackle this issue is to look for new suppliers by the taxpayer to ensure this problem doesn’t persist in the future. Else, the taxpayer must make it clear that if they wish to do business with them, they must ensure reporting of invoices on time.