According to the Goods and Services Tax (GST) as it works in some selected nations, including India, it is a comprehensive indirect tax on the supply of goods and services. It incorporates several indirect taxes functioning like Value Added Tax, service tax, excise duty, etc., and merges them into a single structural system of taxation instead of different indirect taxes. The GST registered companies are supposed to file periodic returns disclosing sales and acquisitions, taxes received, and taxes paid by them. These returns monitor compliance with tax laws, thus helping the government monitor tax liability and claims of input tax credit.
Filing GST returns is done online via the GST portal, with a specific form relative to the type of business and turnover, as per the type of registration. Regular taxpayers will have to file GSTR 1 (outward supplies), GSTR 3B (summary returns, GSTR-9 (annual returns), while composition scheme taxpayers have to file GSTR 4. Those considering GST types, the rest of the taxpayers. The special categories of taxpayers are GSTR 5 (for non-resident taxpayers) and GSTR 6 (input service distributors).
In order to prevent penalties and to make the input tax credit claims easy, the GST returns should be filed earliest. As the GST is self assessment based, accurate and timely filing of the returns is necessary for compliance, transparency, and effectiveness of the tax system.
What is GSTR 1?
GSTR 1 is the return that every registered GST taxpayer must file, either monthly or quarterly, for reporting outward supply, that is, sales in products and services and the said return is supposed to contain information about invoices, debit, and credit notes and modifications in external supplies. GSTR 1 monthly is a requirement for taxpayers having more than ₹5 crore turnover, while others can follow the QRMP scheme of quarterly filing. The information filled in GSTR 1 automatically pushes the recipient’s GSTR 2A and GSTR 2B forms, making it easier to avail input tax credits. Filing GSTR 1 precisely and on time is needed to ensure compliance, avoid penalties and have buyers effectively reconcile their tax liability.
What is GSTR 3B?
GSTR 3B is a self declaration periodic return to be filed monthly by registered taxpayers under the Goods and Services Tax (GST) Act for reporting tax liability and availing input tax credit (ITC). It shall contain details of outward supplies, input tax credits available, and the net amount of tax payable after adjustment. GSTR 3B does not provide information at invoice level, unlike GSTR 1, and instead provides a higher-level view of sales and purchases. Taxpayers, other than those registered under the QRMP Scheme, filing GSTR 3B quarterly, are required to file it monthly. Early filing is the best way to ensure compliance, avoid penalties, and file input tax credit (ITC) claims. Payment of the tax liability as reflected in GSTR 3B needs to be made on an urgent basis in order to avoid interest charges on late reporting.
Reasons for Discrepancies Between GSTR 1 And GSTR 3B
Difficulties in reconciling GSTR 1 and GSTR 3B can be due to many reasons like differences in timing, error in reporting, and tax calculation discrepancies. Some of the usual reasons are as follows:
- Timing Discrepancies – GSTR 1 provides a comprehensive return with invoice level information for outward supplies, while GSTR 3B is a reconciliation. When outward supplies are made late in GSTR 1 but tax payment is made in GSTR 3B, there will be a mismatch. Also, companies under the QRMP scheme file GSTR 1 on a quarterly basis and GSTR 3B on a monthly basis, causing time mismatches.
- Misreporting of Outward Supplies – It can result in inconsistencies if there are errors in reporting taxable, exempt, or zero rated supplies. Additionally, classifying an inter-state sale as intra-state may cause imbalances in IGST, CGST, or SGST.
- Inaccurate Input Tax Credit (ITC) Claims – ITC is admissible only via GSTR 3B and not through GSTR 1. Discrepancies might be observed in cases where claimed ITC differs from automatically generated GSTR 2B data. Moreover, discrepancies are bound to arise if ineligible ITC is claimed or the ITC is not reversed in certain cases.
- Amendments or Omissions in GSTR 1 – Adjustments made to GSTR 1 subsequent to furnishing of GSTR 3B for the particular period can result in differences. In addition, missing bills or inaccurate information in GSTR 1 can lead to mismatches.
- Rounding Differences – Tiny differences can arise because of rounding differences between GSTR 3B and GSTR 1.
- Differences in Tax Payments – Differences in tax liability as reported by GSTR 3B and the reported sales in GSTR 1 can make reconciliation challenging.
The GSTR 1 and the GSTR 3B of the businesses are recommended to be reconciled against the accounting ledgers, along with the reconciliation against GSTR-2B. The differences discovered are recommended to be resolved in the returns for the following month. Technology-assisted automation for reconciliation will help in an early discovery of the mismatches as well as its resolution. Frequent reconciliation will help achieve compliance, avert tax notices, and enhance input tax credits claims.
How to Reconcile GSTR 1 And GSTR 3B?
The matching of GSTR 1 and GSTR 3B is crucial for proper tax reporting, effective claims of input tax credit (ITC), and GST compliance. GSTR 1 reports detailed outward supplies invoice-wise, whereas GSTR 3B is a summary return with payment of taxes. Differences in these two returns can result in tax notices, penalties, or a deferral of ITC for buyers. Regular reconciliation of GSTR 1 and GSTR 3B keeps the firm compliant, prevents penalties, and makes ITC claiming easy. To obtain accurate GST filings, companies need to do reconciliations monthly or quarterly, have proper documentation, and address any differences on a timely basis.
- Download data for GSTR-1 and GSTR-3B. Login into the GST portal (www.gst.gov.in). Click on the Returns Dashboard and download submitted GSTR 1 and GSTR 3B of the concerned period. Export the GSTR-1 details (B2B, B2C, credit/debit notes) and the tax summary from GSTR-3B.
- Compare taxable values under GSTR 1 and GSTR 3B. Total taxable values declared in both returns should be compared. Invoice-level data is present in GSTR 1 (B2B, B2C, exports, etc.), whereas GSTR 3B aggregates taxable supplies for CGST, SGST, IGST, and cess. Verify that total outward supply declared in GSTR 1 should be in line with the taxable supply reflected in GSTR 3B.
- Check Tax Amounts (CGST, SGST, IGST, and Cess). Validate that the tax liability reflected under GSTR 1 is in line with the tax paid as reported under GSTR 3B. Identify misclassification mismatches by classifying taxes into IGST (inter-state), CGST, SGST (intra-state), and cess. Pinpoint tax rate mismatches (e.g., reporting 5% instead of 12% or vice versa).
- Verify Adjustments for Credit and Debit Notes. Verify the credit and debit notes in GSTR 1 (CDN) with the adjustments in GSTR 3B. Make sure to account for any decrease or increase in credit and debit notes correctly.
- Determine Timing Discrepancies (QRMP Scheme and Delayed Reporting). Firms filing under the QRMP scheme file GSTR 1 quarterly and GSTR 3B monthly, which can result in mismatches to be reconciled during the quarter. Correct any discrepancies between sales invoices accounted for in GSTR 1 and GSTR 3B for various months.
- Verify the Exempt, Nil Rated, and Zero Rated Supplies. Make sure that exempt, nil rated, and zero rated (export) supplies are reported in both returns consistently. Discrepancies in classification can lead to mismatches.
- Â Comparison of the GSTR 1 Data with Accounting Records. Cross-reference the sales data obtained from ERP or accounting software with GSTR 1 and GSTR 3B. Admissible invoices, duplicates, and value discrepancies discovered during future returns can be rectified.
- If the Input Tax Credit (ITC) of the entity is aligned between GSTR 3B and GSTR-2B, it should be checked whether the ITC claimed in GSTR 3B is matched with the eligible ITC in GSTR 2B. The excess or ineligible claims for ITC should be revised in future returns.
- Bring Corrections to Future Returns. Resolve any mismatch discovered in the next month’s GSTR 1 or GSTR 3B. If there is any tax underpaid, the amount underpaid becomes due with interest in the next return. In case of excess payment, try to adjust the payment against next month liability or seek a refund, if at all possible.
- Use the automated analysis tools. Most companies have started using GST reconciliation software to allow automated matching of GSTR 1 and GSTR 3B. Use these instruments to quickly identify the mismatches and reduce the chances of further manual errors.
Conclusion
Reconciliation of GSTR 1 and GSTR 3B is required for accurate reporting of tax, penalty avoidance, and GST compliance. Discrepancies between GSTR 1, which includes invoice level detailed reporting and GSTR 3B, which consolidates the tax liability in GSTR 3B, end up leaving the taxpayers with tax notices, ITC delay, or account discrepancies. In addition, ongoing reconciliation assists the business to identify errors in tax payment, non-receipt of bills, and not resulting in an ITC mismatch.
Quick correction of inaccuracies reduces the scope for non compliance and assures proper accounting of the tax obligations. It also brightens tax transparency in documentation, thus helping organisations maintain effective financial controls. Automated reconciliation software could simplify the process and minimise human errors.
Thus, periodic reconciliation of GSTR 1 and GSTR 3B not only facilitates effective compliance with GST but also saves companies from unnecessary tax outgo and interest. This is thus an extremely important activity that needs to be undertaken at regular intervals for the sake of accuracy, compliances, and integrity of finances.
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