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The Process of Reconciliation under GST

It has been over a month since India’s biggest ever Indirect Tax reform has been rolled out. Now is the time to actually get down to work and get ready to comply with the procedural requirements specified under the GST Act.

One such requirement is filing GST returns and reconciling the data inserted at taxpayer’s end with the data entered by our vendors. GST return formats have already been launched by the government. The government requires a lot of information from the taxpayer’s side; so maintaining the records in a proper format and in a proper manner will be the key to make the return process hassle free.

Reconciliation, though prima facie looks like a simple process considering the automation involved under GST, but in fact, it shall consume a lot of your human resource, as you will continuously need to be in touch with your vendors for asking them to make changes/alterations in the returns filed by them.

The taxpayer can view the GSTR 1 (auto populated GSTR 2A) filed by their vendors and the vendors shall also have the access to the data inserted in GSTR 2 (auto populated GSTR 1A) of the taxpayer.

So, if you find any mismatch or missing entries in the return filed by your vendors, its correction will require you to contact with every vendor involved. It would not be a big deal if the number of invoices or the volumes of transactions is less. However, in case you have thousands of invoices within a single month, then even by considering 2% possibility of mismatches, it will be a sizable figure. So, you might require to call the vendors and get the issues solved.

Understanding reconciliation process

While carrying out reconciliation you may face any of the following three discrepancies namely:

1) Mismatch – Your vendor and you, both have entered the invoice, but there are certain mismatches in the content/ingredient of the same invoice.

Example:-

  • Difference in Total amount of invoice
  • Difference in Tax Amounts
  • Difference in HSN code
  • Difference in the item description.

2) Internal Miss Records – Wherein your vendor has entered the invoice but your records don’t reflect such invoice.

3) External Miss Records – Wherein you have entered the invoice in your records, but the vendor records do not reflect such invoice.

The rationale behind these discrepancies might be any of the following, though this is not the exhaustive list of rationale:-

  • Rounding off error
  • Goods in Transit
  • Invoice considered by the vendor not in this month but in the subsequent month, etc.

You shall have two options in all the above cases of discrepancies viz.

  • Accept your records/ changes – it means rejecting vendor’s changes
  • Accept vendor’s records/ changes – it means altering your records

Once the changes are determined and categorised in different buckets according to their nature, the taxpayer is supposed to get in touch with the vendor for sorting out such issues and it shall consume a lot of time to ask vendors to get their returns rectified/ altered.

The reconciliation window provided by the law is from 11th to 14th of the month.  This period lies between due date to file GSTR 1, i.e. 10th of the next month and the due date to file GSTR 2, i.e. 15th of the next month. This short duration will make it very difficult for you to connect with each and every vendor. Therefore, the reconciliation shall be conducted on a continuous basis and at appropriate intervals, so as to make it a manageable affair.

Therefore, only using software will not serve the need for carrying out reconciliation and manual intervention and continuous assistance is must to make reconciliation a hassle free process. Also, you should have systems in place which are capable of carrying out reconciliation at appropriate intervals.

To conclude, we would like to mention here that filing the returns shall no longer be a one-time activity. Henceforth under a GST regime, there is a need for continuous effort towards carrying out reconciliation which will ensure that the input credit loss to the organisation can be kept at a minimum/ acceptable level.

 

Ankita Mathur
Ankita Mathur
Ankita is a CA by qualification and a tax advisor at H&R Block. She works as a senior advisor in the GST Centre of Excellence at H&R Block. She also specializes in matters of India & US individual taxes. Her job involves helping people understand their taxes in the most simplified ways and giving them sound advise on saving taxes.

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