Input tax credit (ITC) is one of the major benefits of GST that helped eliminate the cascading effect of taxes on consumers. It ensured a seamless flow of input tax credit across the supply chain in the country. ITC is a mechanism in which businesses can claim credit for the tax paid by them on their purchases that are used in manufacturing the supplies.
Various changes and modifications were made to the GST rules to ensure compliance, check inapplicable claims of input tax credit, eliminate tax evasion, and bring more businesses into the fold of the formal economy of the country. Input tax credit reconciliation in GSTR-9 is one such rule introduced to protect integrity and transparency in claiming ITC.
What is GSTR-9 Annual Return?
GSTR-9 is the annual return that all taxpayers registered under GST in India have to file by December 31st of the subsequent financial year. It is a summarized return that contains details of all the inward and outward supplies, input tax credit, tax applicable, and tax paid pertaining to the financial year. Filing GSTR-9 is mandatory for all taxpayers registered under GST
What is input tax credit reconciliation in GSTR-9?
GSTR-9 reconciliation involves comparing the data in the annual return with various GST returns, like GSTR-1, GSTE-2A, and GSTR-3B, filed during the financial year. In the GSTR-9 annual return, details of inward and outward supplies, along with ITC claimed, reversed, tax liability, tax paid, and the amendments and adjustments made, are to be reported. By conducting ITC reconciliation, the taxpayer can identify the mismatched entries. He can then get the entries corrected and claim only the eligible ITC. Reconciliation ensures that the GST returns are consistent with the GST laws and that the accurate input tax credit is claimed. Mismatches in the returns can lead to credit losses, fines and penalties, depletion of working capital, and notices from the tax authorities.
Importance of input tax reconciliation
The important process that the taxpayer has to ensure before filing GSTR-9 is the reconciliation of input tax credits. The input tax credit reflecting in GSTR-9 has to be reconciled with the input tax credit claimed in GSTR-3B and ITC available in GSTR-2A. This reconciliation ensures that businesses do not claim excess ITC or underreport their tax liabilities. The government has made many amendments with strict rules for ITC claims. As per the new rules, no provisional ITC claims are allowed. The changes in ITC rules have made it necessary for businesses to do reconciliations throughout the month and follow up with the respective sellers with regard to misreporting, omissions, or delays in ITC reporting.
Tables relating to ITC details in GSTR-9
The following tables in GSTR-9 are related to ITC calculations.
- Table 6: Consists of details of ITC availed as declared in returns filed during the financial year. The ITC details are auto-populated in table 6 of GSTR-9 from GSTR-3B.
- Table 7: Consists of details of ITC reversed and ineligible ITC as declared in returns filed during the financial year
- Table 8: contains other ITC-related information.
Table 6 covers all details of ITC available during the financial year and needs to match with the details in GSTR-3B filed by the taxpayer during the financial
Input tax credit claimed in GSTR-3B
The input tax credit is claimed by all regular taxpayers in their GSTR-3B returns. Table 4 contains the summarized value of eligible ITC, ineligible ITC, and ITC reversed during the tax period. GSTR-2A is an auto-generated form for all regular taxpayers based on the information furnished by their suppliers in their respective GSTR-1 returns. Taxpayers must match the ITC claimed in GSTR-3B with the total of the ITC available in GSTR-2A. It is important to match GSTR-3B with GSTR-2A to ensure ITC is claimed on eligible purchases. Discrepancies, if any, like missing invoices, incorrect information, or non-filing of returns by suppliers, must be identified and rectified regularly to ensure accurate ITC claims.
Reversal of input tax credit
ITC can be claimed on purchases of goods and services used only for business purposes. If they are used for personal purposes or for making exempt supplies, ITC cannot be claimed. ITC will be reversed in the following cases:
- Non-payment of consideration within 180 days of the issue of the invoice as specified in Rule 37 of the GST Act
- A credit note issued to the input service distributor by the seller as specified in Rule 42 of the GST Act
- If inputs are partly for business and partly for personal use or partly for exempted supplies, the ITC on goods and services not used for business purposes will be reversed proportionately.
- Input tax credits on capital goods that are used partly for business and partly for personal use are similarly treated as above. That is the amount is proportionately bifurcated and reversed.
- If the total ITC on inputs of exempted, non-business supplies is more than the ITC actually reversed during the year, then the difference amount will be added to output liability.
Treatment of input tax credit as per GSTR-2A
As per the latest provisions of GST law, certain conditions need to be fulfilled for availing credits, irrespective of what is reflected in GSTR-2A.
As per Section 16 of the CGST Act, read with Rule 36, a recipient can claim input tax credit provided certain conditions are satisfied. The conditions are that he should have received the goods or services along with the tax invoice and other prescribed documents for the supply. The other important condition is that the taxes should have been paid to the government. Therefore, it is safer for businesses to collect the tax-paid confirmation letter from their suppliers so that they have proof in writing of the taxes paid to the government and are eligible for the tax credit.
Issues pertaining to ITC reconciliation in GSTR-9
Difference in ITC between GSTR-2A and table 8A of GSTR-9
There have been mismatches between the input tax credit that is reflected in the auto-generated GSTR-2A and the input tax credit in GSTR-9. The reasons for it are:
- The values in GSTR-2A are auto-populated from the GSTR-1 submitted by the supplier. When the supplier does not file his form GSTR-1, the credit related to those invoices will not appear in table 8A of GSTR-9.
- The values in table 8A of GSTR-9 are auto-populated only after Form GSTR-1 is filed by the supplier before the due date of its filing. Therefore, the ITC pertaining to supplies beyond the due date will not be auto-populated in GSTR-9.
- Input tax credit on invoices in which the place of supply is the state of the supplier instead of the state of the recipient.
- Input tax credit relating to invoices issued to the recipient taxpayer during the period the taxpayer has applied for the composition scheme is not reflected in the GSTR-9.
- GSTR-2A does not reflect all input tax credits, and taxpayers get notices from the tax authorities that their input tax credit has been deemed ineligible without being given the chance to prove that it is genuine.
Other issues pertaining to ITC reconciliation in GSTR-9
- According to the rules pertaining to GSTR-9, input service credits and capital goods must be bifurcated. When taxpayers do not document this bifurcation in their books, they may find it difficult to do so while filing the annual return.
- As per Table 6(B), all inward supplies and input tax credits, excluding exports and inward supplies subject to reverse charge, must be reported. Table 6(H) must contain details of input tax credits refunded or reversed in the same financial year that must be reported. So the values of 6 (B) and 6 (H) overlap.
- Negative values can only be copied into tables 5 (M), 5 (N), and 5 (O) of the GSTR-9 offline utility but not into the online facility.
- In some cases, the GST DRC-03 is not reflecting in the GSTR-9, and they have been unable to file in spite of the adjustment.
- Missing invoices is a common problem, as many times the suppliers may forget to upload the invoices, resulting in a loss of ITC for the taxpayers.
- Modifications in the invoices after filing GSTR-1 can result in discrepancies in ITC and need to be reconciled before filing GSTR-9.
- The interpretation of GST laws by taxpayers may differ, causing discrepancies that must be reconciled.
Steps to ensure correct input tax credit reconciliation
- Maintain correct records of all the transactions, including the details of returns filed during the year, like GSTR-3B and GSTR-2A.
- Compare the ITC availed in GSTR-3B with the ITC available in GSTR-2A.
- Identify the mismatches, such as missing invoices, amendments, errors in the input of values, etc.
- Rectify the discrepancies by contacting the vendors and submitting the amendments in the returns.
- File GSTR-9 after reconciliation with an accurate input tax credit.
- There are several tools and GST-compliant accounting software that offer automated reconciliation options that help in matching the details and filing accurate GST returns.
- Regularly reviewing ITC data and reconciling it throughout the financial year helps in identifying discrepancies and rectifying them in a timely manner.
- Seeking the advice of tax experts can help ease the complex process of ITC reconciliation in GSTR-9 and file accurate annual returns.
ITC reconciliation is an important aspect of GSTR-9 filing and forms an integral part of compliance. Maintaining proper records and documents of all the transactions, regularly reviewing ITC data, and matching with GSTR-2 and GSTR-3B throughout the financial year can mitigate the problems. Matching invoices and following up with vendors for mismatches or invoices not uploaded are important aspects of reconciliation. Accurate reconciliation of GSTR-9 not only protects taxpayers from legal consequences but also helps to maintain transparency, avoid losses, and ensure compliance.
Frequently asked questions
What is the primary issue in the reconciliation of ITC in GSTR-9?
Answer: Missing entries are the primary cause of mismatches in GST returns. When the suppliers file incorrect GSTR-1 returns, they are missed out on in the auto-generated GSTR-2A and GSTR-2B of the taxpayer.
How can the issue of missing entries in GST returns be reconciled?
Answer: Regular reconciliations help the taxpayer identify the missing entries. They can then follow up with the vendors and get them rectified before filing GSTR-9.