The process of Input Tax Credit Reconciliation under GST is necessary to avail maximum Input Tax Credit. However this process consumes a lot of time and human resources, as it involves contacting the vendors for asking them to make changes/alterations in the returns filed by them.
While reconciling we come across various types of mismatches as mentioned below:
- Invoice exists in both the auto-populated GSTR 2A of the purchaser (GSTR 1 of the Supplier) as well as in the purchase register, however there is a mismatch in any one or all of these-
- Taxable value/invoice value
- Tax amount
- Invoice date
- Place of Supply
- Invoices are appearing in the GSTR 2A, however are not recorded by the purchaser in his books of accounts.
- Invoices are recorded by the purchaser in his purchase register, however they do not reflect in the GSTR 2A. This may happen if the supplier does not file his GSTR 1 or fails to record the invoice or he may have mentioned the wrong GSTIN while filing his GSTR 1.
It will be a simple task if the number of invoices or the volume of transactions is low in a particular month. However, in case you have thousands of invoices within a single month, it will be a tedious task to contact all the vendors before making any changes.
Let us now discuss some of the challenges faced during the reconciliation process and the possible solutions for the same.
1. High volume of invoices
As mentioned above, to avail maximum input tax credit the reconciliation process is very important. You need to compare the invoices appearing in the auto-populated GSTR 2A with the invoices recorded in the purchase register and resolve mismatches if any.
If the number of invoices during a particular month is less, then it is easier to directly check it on the portal and compare it with your purchase register manually. However, when the number of invoices are more in a month, then an easier manner to reconcile the difference would be to extract the JSON file of GSTR 2A from the portal and convert it into excel. However, this solution of converting JSON into an excel file will again not be very effective if the number of invoices per month are very high.
In that case the suggested option is to opt for a pre-existing software or application available in the market which provides an automated mismatch report and helps in keeping track of the impact on ITC.
2. Timing differences in the recording of invoices
The purchaser records the invoices in his purchase register in a particular month and the same invoices are recorded by the supplier in a different month.
For e.g. A sold goods to Mr. B on 30th January and raised an invoice for it. However, the goods reached Mr.B on 3rd February and hence he recorded them on the date he received the goods.
Here, the purchaser has 2 options. Either they could accept the supplier's invoice which is reflecting in the GSTR 2A and modify the invoice date in his purchase register to match with the GSTR 2. Another option would be to keep it pending and accept it in the next month. In this scenario, the ITC will match as per the books of accounts, but the date of invoice will remain as per that recorded by the supplier
3. Invoice number mismatch
Sometimes even though the invoice is the same, the invoice number recorded by the supplier and the purchaser differs. Most of the times this difference is due to suffix or prefix added to the invoice number, due to which the invoice number changes. This mismatch is identified when an invoice has same invoice value, counterparty GSTIN, invoice date but the invoice number is different.
4. Credit note unilaterally recorded
An invoice may have a corresponding credit note issued in case of any complete or partial sales return. In this case, there may be a possibility that the purchaser may record the net amount of invoice directly in his books of account instead of recording the credit note separately. This would lead to mismatch while filing GSTR 2.The correct method here would be to accept the supplier's invoice in B2B as well as in CDN and to modify the purchaser's invoice.
5. Non-Modifiable mismatches
There are certain mismatches which are non-modifiable/editable. The only option available is to either reject it & add a new entry in the GSTR 2 or accept what reflect in GSTR 2A. These two non-modifiable mismatches are:
- Date of invoice
- Place of supply
Anytime a mismatch is brought to your attention, you can contact the supplier/vendor to edit his/her invoice, or you can change your invoice to reflect the information entered by your supplier/vendor. However, this method can be time-consuming.
As a preventive measure, you can record all the invoice details in an excel sheet and correct any mistakes before reconciling your invoices and avoiding the mismatches. Again, this can be a tedious task if you generate invoices in high volume. An easy solution is to take the help of experts who have the tools and workforce to take care of your reconciliation.