So, the last month of the Financial Year 2020-21 is about to end and this calls for certain checkpoints that each business shall ensure before they close the financial year. A lot of provisions have to be kept in kind before finalizing books of accounts for the auditor to give a reasonable assurance that the financial statements of the client give a true and fair view. One of such things involves GST compliance, which is why we are required to do the reconciliation of transaction as per GST filing and books of accounts.
How to do GST Reconciliation?
To start with, reconciliation must be done for every GSTIN and then must be considered at a PAN level. Reconciliation must be done across months for the entire FY. Not just that, but the amendments made to GST returns of the previous FY in the current FY must also be considered.
We can download the comparison report from GST portal available under “Returns” tab shown as “Tax Liabilities and ITC Comparison”. These reports show the differences in GST returns filed and ITC declared by the vendors.
By Following the steps given below, we can arrive at the following Reconciliations:
Reconciliation of GSTR-3B with books
Reconciliation of GSTR 1 with GSTR 3B
Reconciliation of GSTR-1 & books
Reconciliation of GSTR-2A/2B with GSTR-3B
Reconciliation of GSTR-2A/2B with books
Following steps can be followed for the Reconciliation:
1. Basics:
Check the HSN codes and Place of business mentioned on GST registration is appropriate. Make the required changes in the same, if any.
2. Reconciliation of Turnover as per Returns & as per Books:
We need to reconcile the differences between turnover in returns and books on a periodic basis and particularly at the end of financial year and watch out for the reasons in differences. There are bound to be certain differences between the turnover in books and returns.
Main Reasons for differences can be:
a. Stock Transfer – In GST, Stock transfers are included in the Turnover whereas in books such transaction gets nullified. Just check whether the GST liability on the same has been accounted & duly discharged.
b. Differences on account of accounting standards like Revenue recognition wherein the revenue might be recognised on a later date but GST was still due in time.
3. Reconciliation of Input Tax Credit (ITC)
ITC is the most important component of your GST returns as it holds greater relevance when compared to any other component of the GST returns. Check for the differences/mismatches between the amount of input tax credit shown in GSTR- 3B and the GSTR 2A/ GSTR-2B. We can download the comparison report from GST portal available under “Returns” tab shown as “Tax Liabilities and ITC Comparison”.
Main Reasons for differences can be:
a. Vendor has paid and reported the GST but we did not claim the ITC yet. Such ITC should be availed at the date earlier of filing Annual Return or in September GST return.
b. We have claimed and availed the ITC but vendor has not paid and reported the same. We must follow up with the vendor to ensure that the liability is discharged or else the ITC might be disallowed.
c. Mismatch between the ITC availed by us and the liability discharged by the vendor, the reasons for which must be identified and reconciled appropriately.
Hence, the vendor-wise reconciliation must be done on a regular basis. If not done, taxpayer must consider doing it before filing GST returns of September of FY following the relevant FY. This will help identify and declare any unclaimed ITC within the deadline.
Make sure these above reconciliations are well prepared and required adjustment in books & returns are done.