In order to claim the input tax credit (ITC), the taxpayers have to reconcile their data on a regular basis.Although the reconciliation process is simple, the necessity for the taxpayers to continuously keep track of any discrepancy or mismatches could be time-consuming.
Availing Input tax Credit: The input tax credit under GST can be availed after satisfying following conditions.
1. Goods or services received must be for furtherance of business
2. Tax Invoice, Debit Note, Bill of Entry should be available
3. Goods or services must be received
4. Tax charged on the invoice should be paid by vendor
5. Vendor must have filed its returns Compliance of conditions number 1 to 3 is under the control of the person claiming the ITC but conditions number 4 and 5 are dependent on external factors where the taxpayer needs to track the compliance status of his vendors for finalisation of his own claim of ITC.
WHY ITC RECONCILIATION IS A TIMELY EXERCISE TO DO?
ITC reconciliation is a timely exercise due to following reasons:
Matching of ITC is a mandatory condition under GST. Government can scrutinize the GST returns upto 6 years.
If reconciliation is not done, the company is carrying major risk for 6 years.
With interest @24% the interest cost may be higher than basic tax.
In case of delay, recovery from a defaulting vendor is difficult.
Detection of misuse of your GSTIN is possible by regular reconciliation.
Reasons for GST reconciliation mismatches:
The liability has been declared by the vendor, but the credit is not yet availed in the GST returns. Such credits should be utilized before the due date of September returns or Annual returns.
Although businesses have utilized credit on supplies in the GST returns, the vendor has not declared liability on such procurements. In this case, the businesses should follow up with the vendor and make sure that the liability is declared. If delayed further, the risks of such credits being disallowed might increase.
Differences between the liability declared by the vendor and the utilized credit. The reason for such mismatch should be identified and reconciled, for instance by issuing debit notes/credit notes.
There can also be a mismatch in the details furnished such as GSTIN of the recipient/supplier, number and date of the invoice, etc. Amendments should be made in the GST returns of the month following the month in which mistakes were committed.
The procedure of reconciliation and matching of GST returns is not new for taxpayers as it was prevalent in the previous VAT and excise regime. Before, the matching of data was done between the books of accounts and tax returns which was an easy task. In case of any discrepancy, the authorities would communicate the same to the taxpayer and accordingly further audits and scrutiny would be carried out.