itc claim in GST

GST Input Tax Credit can be availed without any blocking of your credit if it is done in a right way. This article is mainly focused on ITC claim in GST and its dependence on ITC reconciliation process.

Claiming of GST Input Tax Credit on the purchases made can be difficult and availing only the eligible ITC can be a tricky business. However, if proper guidelines are followed and GST provisions are adhered to then claiming ITC can be an easy task.

Flawless reconciliations, manual error minimization and timely follow-ups with your suppliers can allow you to claim maximum eligible ITC for the month and your working capital will not be blocked.

In this comprehensive article we have discussed the importance of ITC reconciliation to claim maximum eligible Input Tax Credit. We have also discussed the elevated role of Form GSTR 2B in the process of claiming eligible Input Tax Credit.

ITC claim in GST & related Reconciliations

Reconciliation under GST involves matching outward supplies and purchase records between different GST returns like GSTR-1, GSTR-2A, GSTR-2B, GSTR-3B, GSTR-9, GSTR-9C & Books of Accounts.

These reconciliations ensure no inconsistencies in your GST returns as per the GST laws, and you pay the tax equal to your outward tax liability, no less and no more. Moreover, they ensure detailed scrutiny of all the GST returns for anomalies, which helps in a flawless GST return and further a seamless claim for Input Tax Credit under GST.

All these reconciliations hold equal importance in claiming eligible & 100% Input Tax Credit for the taxes paid on the purchases by the taxpayer.

Outputs of a successful reconciliation by a GSTR 2B Reconciliation software

On running a successful Reconciliation between two GST data sets, the following are the outputs received within the reconciliation report:

Heads

Description

Matching records

These entries are valid, and there is no issue when two GST data sets are compared head-to-head.

Mismatching records

These entries indicate that there are mismatches in the values of some of the fields. For example, The tax rate, invoice date, or invoice number do not match between two sets of data like GSTR-2B and Purchase Record.

Missing records in Books

These entries are found in the GST returns but are missing from the taxpayer's purchase records.

Missing records in GSTR-2A/2B

These entries are found in the purchase records of the taxpayer, but they are absent in the monthly auto-generated GSTR-2A or GSTR-2B of the taxpayer. This mainly happens due to irregular GSTR 1 return filing by your suppliers, which negatively impacts your GST Input Credit claim for that month.

Hence businesses must run ITC reconciliation to identify only the eligible ITC.

It's the responsibility of the taxpayers to take immediate action on all the mismatched entries and rectify them as soon as possible. In addition, the taxpayers must develop a communication channel between the GST defaulting suppliers and their clerical team to notify these vendors about this irregularity immediately.

If the reconciliation activity is not run regularly, your business will lose the Input Credit and pay your outward GST liabilities in cash. This will take a toll on the business's working capital, creating a cash crunch.

It’s essential that the business has an effective GSTR 2B reconciliation software to carry out all these activities.

Manual ITC Reconciliation Can Hurt Your Business

ITC Reconciliation

One of the biggest problems that result from manual reconciliation under GST is the lack of standardization for large enterprises.

Many of India's small & medium-sized businesses still prefer manual reconciliation over automated one. But once the number of invoices goes up, it becomes challenging to reconcile your Purchase Registers against your GSTR-2B. As a result, your business loses eligible Input Tax Credit under GST.

Following are some of the direct risks that your business faces in carrying manual GST reconciliation:

  • Risk of error introduction in your GSTR 9 annual return.
  • Invoice number mismatches in your Purchase register against the invoices you have received from your supplier and reflecting in the FORM GSTR-2B.
  • Mismatch in the invoice date as the date of recording the invoices at the seller's and the purchaser's side is different.
  • When the number of invoices increases, this takes up a lot of time for the clerical team to reconcile every invoice received from the supplier and check its validity.

Automating your GSTR-2B vs Purchase Records reconciliation using and automated GSTR 2B reconciliation software will save time and give you a comprehensive report showing the statement's mismatches and the eligible ITC.

ITC claim in GST

ITC Claim in GST & Role of GSTR 2B Recon vs Purchase

ITC reconciliation always involves the data from the GSTR-2B.

Hence it is important to understand the role of GSTR-2B in the ITC reconciliation process.

Details of your purchases shall reflect in your GSTR-2B ONLY if your Supplier has filed his GSTR-1 correctly & on time corresponding to the purchase.

It is essential that the businesses identify their eligible ITC based on a reconciliation of their Purchase records and the monthly auto-generated GSTR-2B.

Reconciling Purchase Records vs GSTR-2B

  • The best way to find gaps in your GSTR-2B statement is to reconcile your auto-generated GSTR2B against your Purchase Records or Books of Accounts.
  • This is the best way to find out ITC for which transactions are missing in your GSTR-2B statement.
  • Manual reconciliation is possible for a smaller volume of transactions. But what if the transaction volume is bulky?
  • The bulky volume of transactions will surely be a problem, and the clerical team will get immersed in these reconciliations and lose a lot of business time and resources.

How to handle a large volume of transactions in GSTR 2B reconciliation?

  • Businesses must prefer using an ‘Automated GSTR 2B Reconciliation tool’ like GSTHero.
  • Automating your GSTR-2B vs Purchase Records reconciliation will save your time and give you a comprehensive report showing the statement's mismatches and the eligible ITC.

How does GSTR 2B reconciliation software benefit my business for ITC claim in GST ?

  • Identify your GST defaulting suppliers.
  • Notify the GST non-filers about the mismatch and ask them to file their GSTR-1.
  • Claiming ineligible ITC can lead to GST audit by department.
  • Minimum human intervention to eliminate errors
  • Detailed reconciliation reports
  • When you choose a GST Suvidha Provider like GSTHero, you stay 100% compliant with the dynamic GST laws.

ITC claim in GST & Role of GSTR-2B vs GSTR-3B Recon 

GSTR2B vs GSTR3B

The supplier files his GSTR-1, and it is reflected under GSTR-2A and GSTR-2B of the recipient.

These are the periodic return filed by the taxpayer that covers all the details for that particular period, such as outward supply, inward supply, tax amount, interest or penalty, if any, etc.

Importance of GSTR-3B and GSTR-2A/2B Reconciliation

  • Removal of cascading effect is an essential aspect of GST.
  • A registered taxpayer will be eligible to the ITC claim for GST paid on inward supplies.
  • GSTR2A  contains the detail of inward supplies made.
  • GSTR-2A will show the details uploaded by the supplier, but under form GSTR 3B, the taxpayer will himself upload the details to claim ITC for the particular tax period.
  • Only ITC available in the GSTR-2B of the month shall be considered the eligible ITC.

A flawless reconciliation between your GSTR-2B statement and your GSTR-3B return ensures no differences in the Input Credit claimed by you and the actual Input Credit available to you in the GSTR-2B statement.

Thus, GSTR-3B vs 2B is an important reconciliation for 100% GST compliance.

What is Blocking your eligible ITC?

ITC reconciliation process
  • Taxpayer’s tend to ignore the GST provisions & GST laws to claim ITC in GST.
  • An inefficient ITC reconciliation process results in mismatches in the final ITC claim, and the issues stay hidden from the taxpayer.
  • Reconciliation is considered a 'consulting activity' and NOT a 'routine business activity.
  • Manual reconciliation is error-prone due to its inefficiency and time-consuming procedure.
  • Vendor communication is missing. An automated mechanism of on-time follow-ups with the defaulting vendors is not in place; hence, many instances go unnoticed.
  • Absence of an automated reconciliation system to identify such defaulting vendors, reach out to them and notify them about the discrepancies in the return filing.
  • ERP systems do not support payment holding features for the defaulting suppliers.

GST Input Tax Credit checklist for 100% ITC claim in GST

1. Check your GSTR-2B for the ITC details

  • GSTR-2B is the definitive source to identify your eligible Input Tax Credit of the month.
  • GSTR-2B is considered the final and standard document to claim your eligible ITC.
  • It is advised that the taxpayers check their GSTR-2B for any discrepancies before claiming Input Tax Credit.
  • Invoice details of your purchases will appear in your GSTR-2B if and only if your suppliers have filed their GSTR-1 on time and accurately.
  • Hence, this step is an essential one as this will give you a final confirmation about the amount of eligible ITC you can claim for a particular month.

We do have an individual article on GSTR2B Checklist to maximize your ITC claim in GST, please go through the complete guide and protect your working capital.

2. Identify & follow up with the defaulting vendors

  • Failure of your supplier to file his GSTR-1 returns can negatively impact your Input Tax Credit and also block your working capital for business.
  • If you identify any missing invoices present in your purchase records but are absent in your GSTR-2A or 2B, you should immediately follow up with the respective supplier.
  • Informing the defaulting supplier will help file the returns, and you shall claim the ITC in the next month for that missing invoice (in case the due date is over).
  • Hence, businesses must have a robust ‘vendor management’ mechanism

3. Automate your reconciliations

  • No clerical errors
  • 100% flawless reconciliation report with error identification.
  • Automated reconciliation solutions are directly synced with the GST portal. Hence, the data fetched is authentic and in real-time.

4. GST Compliance is necessary

  • When you have multiple GST registrations under a single PAN, it isn't easy to 100% comply with the GST laws.
  • When you use an automated GST return filing solution, you outsource this compliance responsibility to the service provider.
  • Opting for an automated tool like GSTHero helps you stay 100% compliant with the GST laws without extra effort.

Consequences of NOT Running Automated Reconciliations

Following are the potential threats that loom around your business if you lack proper ITC reconciliation software:

  • Claiming of ineligible ITC can bring your business under the radar of the GST department
  • Absence of a detailed summary report restricts decisions of the business
  • Your eligible ITC remains under-utilized and you end up paying GST outward liabilities in cash
  • The burden of GST compliance is shifted to the Service provider. It means that the businesses do no need to worry about the GST compliance requirements anymore.
  • Efficient reconciliation software helps businesses to avoid penalties and interest for delayed or inaccurate GST return filing.

ITC claim in GST with GSTHero’s support

GSTHero’s Reconciliation tool is a complete package for all the Reconciliation needs.

You can rest your trust in us for:

  1. Elimination of errors
  2. Quicker & customized reconciliation
  3. Super-fast record for mismatches
  4. User-friendly design & no need for expertise to use our tool
  5. Easy Integration with Tally and other ERPs

GSTHero is a government-appointed GST Suvidha Provider, and hence you can worry less about the security of your data and sensitive credentials!

You get five essential ITC Reconciliation reports that will be highly beneficial for you to claim 100% ITC and help you identify the defaulting suppliers.

  1. GSTR1 Vs. GSTR-3B
  2. GSTR-2A Vs. GSTR-3B
  3. GSTR1 Vs. Book of Accounts
  4. GSTR-2A Vs. Book of Accounts
  5. GSTR1 Vs. E-way Bill

Conclusion

In this article we discussed the importance of ITC reconciliation for claiming eligible Input Tax Credit under GST.

To summarize the article, ‘Automated & regular reconciliations are essential to claim 100% ITC under GST’.

Businesses can rely upon GSTHero for all their reconciliation needs. GSTHero is a government-appointed GST Suvidha Provider, and hence the GST data is directly fetched from the GST network.

Stay updated; stay ahead!

Until the next time…..

Claim upto 100% Input Tax Credit

Easiest GSTR 2B Reconciliation With Reverse ERP Integration

  • Identify defaulting suppliers 
  • 100+ validation checks for each invoice
  • Accurate GSTR 2A reconciled with purchase
  • Get every month’s GSTR-2A within seconds

Gaurav Yadav

About the author

Gaurav is an Engineer by training with a deep interest in Economics & Finance. He has been associated with the Fin-Tech industry for quite some time now. He writes for GSTHero for topics including GST Compliance, GST Structure, etc & aims to break down complicated technical jargon into simple terms for the taxpayers.

His expertise includes GST Laws, Corporate Finance & Macro-Economics.

Follow us:

Leave a Reply

Your email address will not be published. Required fields are marked

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}