Goods and Services Tax (GST) is a comprehensive indirect tax system that is implemented in India and its compliance is a crucial aspect of running a business. Hence, one of the most important compliance requirements is GST reconciliation.
This process is essential to ensure that GST compliance is maintained and to avoid penalties and fines. GST reconciliation can be a complex process, and businesses need to ensure that they have the right systems and processes in place to handle it effectively.
So here’s a guide that will provide a step-by-step approach to GST reconciliation, including the key steps involved, common errors to avoid, and best practices for compliance. Be it SMEs or any size business, whether you are just starting out or are well-established. This can ensure that you stay compliant with GST regulations and can avoid costly errors and penalties.
GST reconciliation is the process of matching the GST liability reported in the GST returns filed by a business with the GST credit available to the business as per the records of the GST authorities. The purpose of GST reconciliation is to ensure that the GST liability reported by a business matches the GST credit available to the business and to identify any discrepancies or errors that may have occurred in the reporting of GST.
There are several steps involved in GST reconciliation, including:
The first step in GST reconciliation is to collect all the GST data related to the business. This includes all the GST returns filed by the business, invoices, debit notes, credit notes, and other relevant documents. This data is used to calculate the GST liability of the business and the GST credit available to the business.
Once the GST data is collected, it needs to be matched with the GST credit available to the business as per the records of the GST authorities. This includes comparing the GST liability reported by the business in the GST returns with the GST credit available to the business as per the GSTN portal. It also includes comparing the invoices, debit notes, credit notes, etc., with the GST credit claimed by the business.
After matching the GST data, any discrepancies or errors that may have occurred in the reporting of GST need to be identified. These discrepancies could be missing invoices, incorrect GST rates, or incorrect GST credit claims.
Once the discrepancies or errors are identified, they need to be resolved by taking appropriate action. This could include rectifying the GST returns, claiming GST credit, or paying additional GST liability. It's important to take appropriate action as soon as possible to avoid any penalty or interest on delayed payments.
After resolving the discrepancies, a GST reconciliation statement should be prepared that shows the GST liability reported by the business, the GST credit available to the business, and any discrepancies or errors identified. This statement provides a clear picture of the GST liability of the business and the GST credit available to the business.
The final step in the GST reconciliation process is to file the GST reconciliation statement with the GST authorities. The GST reconciliation statement should be filed by the due date to avoid any penalty or interest on delayed filing.
It's important to note that GST laws are subject to change, and the process of GST reconciliation may also change. So it's always good to consult with a GST expert or check the GST laws for the most up-to-date information. Additionally, reconciling GST on a regular basis will help to ensure compliance with GST laws, avoid any penalties or interest, and make the process of GST compliance more efficient for the business.
Every GSTIN must first undergo reconciliation before being taken into account at the PAN level. For the entire FY, reconciliation must be performed across all months. Additionally, it is necessary to take into account any changes that were made to the GST returns from the prior FY during the current FY.
The ITC is the most crucial element of your GST returns since it is more relevant than all the other elements combined. The present GST regime does not follow the same process as the old tax system for determining the validity of claims. When filing GST returns, a taxpayer can now verify the authenticity (vis-a-vis with GSTR-2B or GSTR-2A and take action). As mentioned earlier, tax authorities typically perform this check as they process the returns.
As a result, vendor-wise reconciliation needs to be carried out frequently. If not done, taxpayers must think about doing it before submitting their GST returns in September of the fiscal year (FY) after the applicable FY. This will make it easier to find and declare any unclaimed ITC before the cutoff date.
GST compliance and reconciliation are closely related because they both involve ensuring that a business is adhering to GST regulations and that all GST amounts are accurate. GST compliance refers to the process of following the rules and regulations set by the government for the GST system, including registering for GST, filing GST returns, and paying GST to the government. GST reconciliation is the process of comparing the GST charged and collected by a business to the GST reported and paid to the government. This helps ensure that the business is compliant with GST regulations and that all GST amounts are accurate and up-to-date. The two processes are interrelated, as GST compliance enables a business to accurately file GST returns and pay GST to the government, which in turn allows for accurate GST reconciliation.
GSTIN (Goods and Services Tax Identification Number) is a unique number assigned to each registered taxpayer under the GST system. A mismatch in the GSTIN can occur when the GSTIN on invoices does not match the GSTIN on GST returns. This can happen when businesses use the wrong GSTIN or when they use a GSTIN that is not valid. This can lead to incorrect GST calculations and result in penalties and fines. To prevent this, businesses should double-check that the correct GSTIN is used on all invoices and GST returns. They should also ensure that the GSTIN on invoices matches the GSTIN of the recipient.
HSN (Harmonized System of Nomenclature) codes are used to classify different types of goods and services for GST purposes. Incorrect HSN codes can lead to incorrect GST calculations and can result in penalties and fines. To prevent this, businesses should properly classify goods and services and use the correct HSN codes on invoices and GST returns. They should also ensure that the HSN codes on invoices match the HSN codes of the goods or services being supplied.
ITC refers to the GST paid on inputs (goods and services used in the production or supply of other goods and services) that can be claimed as a credit against the GST payable on outputs (goods and services sold). ITC errors can occur when businesses claim ITC for GST that has not been paid or when the wrong amount of ITC is claimed. This can lead to incorrect GST calculations and can result in penalties and fines. To prevent this, businesses should ensure that they have the necessary documentation to support their ITC claims and that the correct amount of ITC is claimed. They should also ensure that the ITC claims are made within the time limits specified by the GST law.
GST returns are documents that businesses are required to file with the government to report their GST liability and claim ITC. Late filing of GST returns can result in penalties and fines. To prevent this, businesses should ensure that they file their GST returns on time. They should also ensure that the GST returns are filed correctly, with all the required information and supporting documents.
Data entry errors can occur when manual data entry is involved. These errors can include typos, transposition errors, and other mistakes. These errors can lead to incorrect GST calculations and can result in penalties and fines. To prevent this, businesses should use automated software that is designed to handle GST compliance and reconciliation. This software can automatically calculate GST, validate GSTIN and HSN codes, and generate GST returns. They can also help to minimize data entry errors and reduce the risk of errors and omissions.
Then there's the question of how to complete all of this time-consuming work while avoiding manual errors. For this reason, selecting an automated accounting software that complies with GST can be the best option for you.
This is a type of software that is specifically designed to help businesses comply with GST regulations and handle GST accounting tasks such as invoicing, GST return filing, and GST reconciliation.
This software can automate various GST-related tasks, such as
Moreover a GST-compliant accounting software like GenieBooks has complete on-cloud features of accounting and inventory management built within, to streamline GST compliance and accounting tasks from anytime, anywhere.