GSTR-2B Reconciliation: Protecting Your Bottom Line with ITC

GSTR-2B Reconciliation: Protecting Your Bottom Line with ITC


In recent years, fraudulent practices have been prevalent in availing Input Tax Credit (ITC). In FY2021, more than Rs 35,000 crores of ITC was wrongly claimed. This misuse primarily stemmed from Rule 36 of the CGST Rules, 2017. This underscores the critical importance of GSTR-2B reconciliation.

Rule 36 amendment and its impact

The amendment introduces GSTR-2B as a benchmark for determining the amount of eligible ITC. From January 2022, businesses can avail of ITC only to the extent reflected in GSTR-2B. Earlier, Rule 36 allowed buyers to avail of provisional ITC (over and above the amount prevailing in GSTR-2B) up to 5% of the eligible ITC reflected in GSTR-2B, but not anymore. Restricting ITC to GSTR-2B impacts businesses negatively, especially large-scale companies with crores of ITC in the funnel. Thus, it has become increasingly vital to reconcile GSTR-2B and the purchase register.

Imagine losing crores of ITC due to inefficient reconciliation of GSTR-2B and purchase register. It will impact working capital and may even lead to a financial crisis. According to Ernst & Young – industry trends depict mismanagement of ITC may increase working capital requirements by 5-7% and negatively impact profit before tax by 1-2%.

The following illustrations explain how inefficient reconciliation of GSTR-2B and purchase register may lead to loss of ITC:

  1.  Say out of Rs 1,00,000/- of total purchases, the supplier furnishes details of Rs 70,000/- in GSTR-1. Therefore, GSTR-2B will depict eligible ITC as Rs 70,000/-, and ITC worth Rs 30,000/- will be lost until the supplier updates it.
  2. A failure to update purchase-related credit notes in GSTR-2B can also result in over claiming of ITC, which is subject to penalties. CGST law prohibits ITC claims for credit notes even if not yet updated in GSTR-2B.

Thus, the onus of reconciling GSTR-2B and the purchase register to reduce the risk of ITC disallowance and penalties is more prevalent than ever.

Why automate GSTR-2B reconciliation? 

Reconciliation of innumerable transactions of GSTR-2B and purchase register is a tedious task, especially when done manually. Reconciliation is possible with Excel formulas like LOOKUP, MATCH, etc., but to some extent only. There is always a risk of corrupting Excel files with heavy GSTR reports and purchase registers. Moreover, manual intervention in applying formulas also exposes you to errors, thus marking the need for automation in reconciliation.
According to Deloitte’s — GST@5 survey 2022, reconciling ITC with auto-generated reports (GSTR-2B) is the highest-ranked issue with GST and automation is an ideal solution. Adopting technology and automation for GST is prevailing in all — large, medium, or small-scale enterprises as they are losing crores of funds in ITC mismanagement.

One such software that can help you save crores is Firmway. It is a SaaS-based software company specializing in multi-GSTIN and multi-month reconciliation of GSTR-2B and purchase registers. This innovative platform automatically carries unmatched items from the previous month and matches them with the data from the following months. Achieving up to 95% accuracy, it relies on a unique blend of technology and algorithm. Not only reconciliation but technology also smoothens the further steps: vendor communication and summarizing reports. Thus, opt for technology to simplify the voluminous task of ITC reconciliations and save yourself from litigation.

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