GSTR-3B Reconciliation with GSTR-1 and GSTR-2A: Avoiding Tax Mismatches and Penalties

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Published Date:  25-08-2023   Author:   vidya-sagar
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GST is a consolidated value added tax levied on the manufacture, sale and consumption of goods and services across India. It subsumes different taxes that were earlier levied at state and national levels, thereby eliminating the cascading effect of taxes on the consumer. The key feature of GST is the input tax credit, which is the credit that suppliers can claim on the inputs and purchases used in the manufacture of the supplies.

To check the claims of taxpayers and prevent leakages, an invoice matching system has been developed to match the purchase and sale invoices of taxpayers. Accordingly, every registered taxpayer must compulsorily issue a tax invoice that has to be uploaded in the invoice matching system. Only when the sale and purchase invoices of a taxpayer have been matched, the ITC will be confirmed.

GST return filing is a mandatory compliance for all registered businesses. Failure to file the returns may result in penalties, interest, and other legal complications. There are different types of returns for various categories of businesses and these returns form the basis for the tax authorities to calculate the net tax liabilities of the taxpayers. Of these, GSTR-3B is a mandatory return that has to be filed monthly by the 20th of the month following the tax month. It is a self -assessed summary return of inward and outward supplies, input tax credit, tax liability and tax paid. GSTR-2A is a purchase related, auto populated form generated in the recipient’s login, detailing all outward supplies and GSTR-1 is a return detailing the outward supplies filed by the supplier. The return records the monthly/quarterly sales and tax liability of the supplier.

Read More: What is GST Registration?

Reconciliation of GSTR-3B with GSTR-2A

Reconciliation of GSTR-3B with GSTR-2A is crucial because it helps businesses claim the full input tax credit (ITC) and reverse any excess ITC claimed. It also ensures that the credit claimed is for the tax which has actually been paid by the supplier. So, the business has to be careful while recording the outward supplies in GSTR-1 and also in the summary return GSTR-3B. When these details are correctly recorded, reconciliation becomes easier, and the tax is computed accurately. But inadvertent errors crop up sometimes, then the recourse is to record the correction entries in the next return and pay the difference tax with interest. Regular reconciliation is therefore very important to ensure that the correct input tax credit is claimed and to avoid any complications due to the mismatch.

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Reasons for Mismatch between GSTR-3B and GSTR-2A

  • IGST credit claimed on the import of goods and services.
  • GST credit paid on reverse charge mechanism.
  • Transitional credit claimed in Tran I and Tran II is not applicable.
  • ITC was not claimed in the financial year when the goods and services were received.

Reconciliation of GSTR-3B and GSTR-2A will help to avoid errors in claiming input tax credit and if the errors are identified before filing the GSTR-3B, the return can be rectified. If an excess ITC claim has been noticed, after it has been filed, the taxpayer has to pay back the excess claimed along with interest. Therefore, regular reconciliation of GSTR-3B with GSTR-2A is important to ensure that the correct amount of ITC is claimed and to avoid penalties and interest.

Reconciliation of GSTR-3B with GSTR-1

GSTR-1 is a monthly/quarterly return that reflects monthly/quarterly sales and tax liability. Reconciliation between GSTR-3B and GSTR-1 is important to make sure there is no duplicity or omission of invoices and to arrive at the accurate tax liability that is payable on the sales during the specified period.

Reasons for Mismatch in GSTR-3B and GSTR-1

  • Recording supplies under wrong heads in GSTR-3B, while correctly furnishing them under correct heads in GSTR-1
  • Invoices pertaining to a particular month being issued at a later date.
  • Supplies to unregistered persons entered in GSTR-1 under wrong head or omitted causing mismatch in GSTR-3B.
  • Tax paid under incorrect heads. For example, CGST and SGST instead of IGST or Vice versa
  • Change in tax liability filling time between GSTR-3B and GSTR-1.
  • Reporting invoices in GSTR-1 and GSTR-3B at different dates

These errors may result in penalties and interest with notices from the tax authorities to the effect. Hence it is necessary to reconcile GSTR-3B with GSTR-1 regularly  and the errors rectified before filing. Once GSTR-3B is filed, it cannot be modified. They must be rectified in the subsequent returns and the difference tax liability along with interest has to be paid to avoid penal consequences from tax authorities.

FAQs

  1. What are the common mismatches noticed while reconciling GSTR-3B and GSTR-1 and GSTR-2A?

Answer: The common mismatches noticed while reconciling GSTR3B, GSTR-1 and GSTR-2A

  • Difference in the input tax credit shown in GSTR-3B and GSTR-1
  • Difference in sales details in GSTR-3B and GSTR-1 like wrong invoice details in GSTR-1
  • Nil rated supply shown in GST supplies.
  • GSTN of recipient mentioned wrongly.
  • Selecting wrong return frequency
  • Repetition or omission of invoice details in GSTR-1
  • Showing ITC details under wrong heads and reversal of ITC
  • Taking excess ITC or short ITC in GSTR-3B
  • Export sale taken as normal sale.
  • Non submission of final return

2. What are the tools and resources available for reconciliation of GSTR-3B, GSTR-1, and GSTR-2A?

Answer: There are many GST compliance software available nowadays which help in accurate reconciliation by matching GSTR-2 and GSTR-1 with GSTR-3B. They also calculate and file GST directly. With automated built-in calculators, tax liability can be accurately calculated. They also seamlessly integrate with other accounting software in use and simplify the process of GST returns filing.

Read More:  Understanding Utilization of Input Tax Credit (ITC) in GSTR-3B

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Conclusion

Reconciliation between GSTR-3B, GSTR-1 and GSTR-2A, before filing GSTR-3B will help identify any discrepancies in input credit claims, tax computation, etc. These errors can be rectified in the subsequent returns. When matching of these crucial returns is not done, it may result in financial loss to the businesses because of penalties and they may have to face other legal consequences.

Regular reconciliation is therefore very important to ensure that correct input tax credit is claimed, and accurate tax liability is calculated and paid. Compliance with the GST regulations is of paramount importance to businesses today to avoid any complications due to the mismatch, legal notices, penalties and interest and sometimes other stringent measures. Businesses must ensure proper maintenance of records, conduct regular reconciliations, update with latest GST circulars and notifications and follow best practices to ensure timely and accurate filing of GST.

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Vidya Sagar

Vidya Sagar has post graduate and Law graduate qualifications. She has worked in the finance industry for many years. She is passionate about writing and keen on writing articles related to tax, accounting, audit and other finance related topics. She likes to simplify complex financial matters to help her readers understand easily. She reads a lot in her spare time and keeps herself updated with the latest financial news. She likes helping people in all their financial and compliance requirements

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