Reconciling of ITC means matching the invoices with the supplier in order to claim input tax credit. earlyGST by H&R Block India explains ITC Reconciliation in detail.

Reconciliation of Input Tax Credit Before Finalisation of Accounts

Last Update Date : April 04, 2019
Estimated Read Time: 4 min

itc reconciliation

The process of reconciling Input Tax Credit in GST is very important for claiming maximum Input Tax Credit. The reconciliation of ITC, however, is a lengthy, time consuming process where the human resources have to contact the vendors if there are any changes or alterations to be made in the returns that the vendors have filed.

Although at the time of implementation of GST, the government has only made it mandatory for people to file GSTR-1 and GSTR-3B, it is necessary that people reconcile the ITC that they have claimed in GSTR-3B with auto-populated GSTR-2A which is based on the GSTR-1 of the supplier.

What is Reconciliation of ITC?

Reconciliation is nothing but matching the input tax credit, which a person claims, with the details that are provided by the supplier in his return to see if the information is correct. If there is any mismatch that has been noticed, both the recipients and suppliers will be contacted to correct the discrepancies. The total input tax credit claimed in GSTR-3B should match with the records of purchase that we have as well as the with the records of sales that the supplier/vendor has provided.

Types of Mismatches

Before we move ahead, let us take a look at the types of mismatches that might happen while reconciliation.

  1. The invoices exist in the purchase register as well as in the auto-populated GSTR 2A, but there might be a mismatch in invoice/taxable value, or the amount that is taxable, or the date of invoice or then the place of supply mentioned in the invoices.
  2. Though the invoice is appearing in the GSTR 2A, the purchaser has not recorded the same in his purchase register (book of accounts).
  3. The purchaser has recorded an invoice in his book of accounts, but it is not reflected in the GSTR 2A. This mismatch takes place when a supplier fails to record the invoice or fails to file his GSTR 1 and may have failed to mention the correct GSTIN while filing his GSTR 1.

The reconciliation task will be a simple one if the number of invoices or the amount of transactions is low in a month, but it will prove to be a tiring task to contact different vendors before making any changes if there are thousands of invoices in a single month.

Challenges faced during Reconciliation Process and the Solutions

Though reconciliation is important, there are some unavoidable challenges that one may face while reconciling the same. Here are some of the challenges faced during reconciliation and how to resolve them.

Huge number of invoices

Reconciliation process requires matching the invoices appearing in the auto-populated GSTR 2A and the purchaser’s book of accounts. This can be easier if the number of invoices is less and you have to directly check it manually from the portal and compare it with your purchase register. But, it can get tiresome for people to check it manually if the number of invoices is huge in a month. The purchaser, in this case, will have to download GSTR 2A in excel, to easily reconcile the difference. However, if the number of invoices in a month is extremely high, the purchaser will have to opt for a pre-existing software or an application that is available in the market to help provide automated mismatch report and to keep track of the impact on ITC.

Difference in timing in recording invoices

A purchaser records an invoice in his book of accounts in a certain month, and the supplier records the same invoice in a different month. For example, Aaron sold his goods to Brian on 30th August and raised an invoice for it. However, the goods were received by Brian only on 3rd September, and therefore he recorded the invoice on the date of receipt of goods. In this case, the purchaser has two options, he can either accept the supplier’s invoice that reflects in GSTR 2A and changes the date in his register to match with it. In this way, the date of invoice in the purchaser’s register, as well as GSTR 2A, will be same.

Mismatch in the invoice number

Even if the invoice is the same, it may so happen that the invoice number recorded by both the parties do not match. The difference is due to the suffix or the prefix that is added to the invoice number, most of the times, because of which the invoice number changes. The mismatch can be identified when an invoice is similar in regards to the invoice value, GSTIN, invoice date but wrong invoice number.

Credit note recorded unilaterally

In case of any complete or partial sales return, an invoice might have a corresponding credit note issued. If this is the case, there is a possibility that the purchaser might record the net amount of the invoice directly in his register rather than recording the credit note separately. The correct way here will be to accept the invoice of the supplier in B2B and CDN and modify the purchaser’s invoice.

Non-editable mismatches

The two mismatches that cannot be modified are the date of invoice and the place of supply. If at any given time a mismatch occurs, the purchaser can either contact the supplier to edit his invoice or change the invoice to reflect the information entered by the supplier.

How can earlyGST by H&R Block help you?

earlyGST by H&R Block provides reconciliation service where the corporates can pre-check their returns to avoid mismatches before filing. Our dedicated team can help you handle mismatches by following up with your vendors on actionable.

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CA Chetan Shinde
CA Chetan Shinde
Chetan is the Lead Tax Advisor at H&R Block (India) with an experience of almost half a decade in audit and taxation. His professional areas of interest are GST advisory and statutory audit. Apart from taxation, he is passionate about social causes and works extensively towards rural school development and literacy.