Regular GST Reconciliation for tax planning & budgeting
Goods and Services Tax (GST) was introduced in India in 2017 to replace the existing indirect tax regime. Under GST, businesses have to file periodic returns and pay taxes based on their turnover. However, due to various factors such as human errors, technology glitches, and mismatches between the supplier and recipient invoices, discrepancies in tax payments can occur. Regular GST reconciliation can help identify and rectify these discrepancies, ensuring that businesses comply with the GST law and avoid any penalties. You can also take the help of third-party softwares to help you with this.
What is GST Reconciliation?
GST reconciliation refers to the process of matching the data of sales and purchases reported by the supplier and recipient in their respective GST returns. This is done to ensure that the tax paid by the supplier matches the tax claimed as input credit by the recipient. The reconciliation process helps to identify discrepancies in the GST returns and rectify them in a timely manner.
The reconciliation process involves comparing the data uploaded by the supplier in their GSTR-1 return with the data uploaded by the recipient in their GSTR-2A return. If there are any discrepancies, the recipient can either accept the changes made by the supplier or reject them and ask for rectification. After rectification, the recipient can claim the correct input credit in their GSTR-3B return.
Why is Regular GST Reconciliation important?
Regular GST reconciliation is an important process that helps businesses ensure compliance with tax laws and regulations.
The following are some of the reasons why regular GST reconciliation is important
● Avoiding Penalties
The government can impose penalties on businesses that fail to comply with GST laws. Regular GST reconciliation helps to identify any discrepancies in returns and rectify them in a timely manner, thus avoiding penalties.
● Improving Cash Flow
When a recipient claims input credit, the tax paid by them is credited to their electronic cash ledger, which can be used to pay GST liabilities. Regular reconciliation ensures that the input credit claimed by the recipient matches the tax paid by the supplier, which in turn improves cash flow. This helps businesses manage their cash flow more efficiently and avoid any cash flow-related problems.
● Accurate Tax Planning
Accurate reconciliation of data provides businesses with a clear picture of their tax liability, allowing them to plan their finances accordingly. By having a clear understanding of their tax liability, businesses can make informed decisions about their financial planning and budgeting. This can help businesses avoid overpaying or underpaying taxes, which can impact their financial health.
● Avoiding Litigation
Maintaining regularity can help to avoid litigation as it ensures that all transactions are properly recorded and all taxes are paid on time. This can help businesses avoid legal disputes, which can be costly and time-consuming. By avoiding litigation, businesses can focus on their core operations and improve their bottom line.
● Improved Vendor Management
Regular GST reconciliation can help businesses improve their vendor management. By reconciling their GST returns with their vendors, businesses can identify any discrepancies in the data and work with their vendors to rectify them. This can help businesses build stronger relationships with their vendors, which can be beneficial in the long run.
Steps for Regular GST Reconciliation
The following are the steps involved in regular GST reconciliation
● Download GSTR-2A
The recipient can download the GSTR-2A from the GST portal. This will contain the details of all purchases made by the supplier.
● Match the details with the Purchase Register
The recipient should match the details in the GSTR-2A with their purchase register to ensure that all purchases are captured.
● Identify Discrepancies
The recipient should identify any discrepancies between the GSTR-2A and their purchase register. These could be due to differences in invoice numbers, tax rates, or values.
● Rectify Discrepancies
If there are any discrepancies, the recipient should inform the supplier and request rectification. The supplier can rectify the errors in their GSTR-1 return.
● Reconcile Input Tax Credit
After rectification, the recipient can reconcile the input tax credit in their GSTR-3B return. This will help to ensure that the tax paid by the supplier matches the tax claimed as input credit by the recipient.
Takeaway
GST reconciliation is an important process that businesses should undertake to ensure compliance with GST rules and regulations. The process helps to identify and rectify any discrepancies in tax returns, which can improve cash flow, help with accurate tax planning, and avoid penalties and litigation.
Filing GST returns is a little tricky and requires technical and specialised knowledge. GenieBooks makes it easy for you to file GST returns and ensures high security of data and integrity.
