Tag: Automated reconciliation

Mastering 26AS Reconciliation

Mastering 26AS Reconciliation: Proven Ways to make it a Breeze

Understanding the Need for Mastering 26AS Reconciliation

In recent years tax regulations have undergone humongous change. Many of these are being done with the intention of ensuring that all the transactions are duly reported to the Income Tax. Mastering 26AS Reconciliation amidst these evolving regulations.

Department (IT Department). With the help of this information, the IT Department will be able to analyze and catch hold of tax evaders.

Decoding Section 194Q: Mastering 26AS Reconciliation Amidst TDS On Goods

One such change is the introduction of Tax Deducted at Source (TDS) on the purchase of goods vide Section 194Q of the Income Tax Act (IT Act). The introduction of the same has resulted in flooding of the TDS entries in Form 26AS. It is a form which captures details of the TDS deducted and reported for a particular Taxpayer. Further, the IT Department relies on this form before allowing the TDS refund or adjustment of TDS against Income Tax liabilities. Therefore, it has indirectly become mandatory on the part of the Taxpayer to ensure that the Deductor has reported all the TDS in its Form 26AS. However, to identify the same one needs to first identify the Deductor who has not reported the same. Therefore, it has become necessary to reconcile Form 26AS.

However, Reconcile with what other data source?? There are two options 1) TDS ledger and 2) Sales Register. Let’s try to understand how each of these ways works and which one to select for your organization.

1) 26AS v/s TDS Ledger (Approach 1)

In this way, Form 26AS of Taxpayer is reconciled with the TDS receivable ledger maintained by the Taxpayer. This is a direct approach where we are comparing two different data sets capturing the same information.

2) 26AS v/s Sales Register (Approach 2)

In this way, Form 26AS is compared with what TDS should have been deducted for each and every sales line item. Assuming that the Tax Deductor has diligently deducted the TDS, this is an indirect way.

Both approaches have their benefits and drawbacks, so organizations should choose the one that best suits their needs. Below are the areas which one should consider before choosing the approach:

A) Timing of booking of TDS receivable

Most organizations book TDS Receivable at the time of payment receipt. So while doing reconciliation there will also be a date mismatch and in the scenario where there are ‘000s of line items, this becomes difficult to handle when we are opting for Approach 1. However, if linking of payment with invoice is available then Approach 1 can become very easy to implement.

If the organization books TDS Receivable on an ad hoc basis, it shall opt for Approach 2, provided all the other details are available.

B) Reporting pattern of Tax Deductor

Are the Tax Deductor reporting on the basis of the actual date or are they either putting the date of the end of the month or the end of the quarter? Accordingly, one shall select the approach of reconciliation. If the Tax Deductor is clubbing the amount for the quarter or month and just reporting a single line item then in that case just a TAN level month-wise or quarter-wise reconciliation will suffice.

C) Availability of TDS rate for each sales line item

Approach 2 is possible only when one has proper records of the TDS rate applicable on each sales invoice or each line item of the sales invoice. In many cases, when billing services and goods in a single invoice, each line item of the invoice will have a different TDS rate.

Hence, it is crucial to exercise precision when choosing an approach. Selecting the wrong method can elongate the activity and potentially result in repetition.

Future-Proofing Your Finances: Mastering 26AS Reconciliation for Long-Term Compliance

Organizations can also evaluate various software which are available to automate 26AS reconciliation. One such solution is provided by Firmway. Firmway’s 26AS reconciliation software provides both the approach as mentioned above. Moreover, it also provides the option of line level as well as TAN level reconciliation. To know more about Firmway’s 26AS Reconciliation Click here.

Enhancing Accounting Cash Flow: A Journey from Data Gathering to Data Digging

Boosting Cash Flow: The Power of Data Digging in Accounting

Transforming Accounting: From Data Gathering to Enhancing Cash Flow

Traditionally, the role of accounting has always been the data keeper. The Accounts team has always been regarded as both a booster of cash flow and a cost center for businesses, merely maintaining records of Company activities. However, recent developments have assigned additional roles to account teams, altering this perception from mere data recording to actively boosting cash flow. The 21st Century has realized the importance of data and its analysis. Data analysis is not just limited to operation activities. It has also made its presence felt in account function as well. One such data digging exercise we will be focusing on today is boosting cash flow through Ledger reconciliation.

The Impact of Ledger Reconciliation on Cash Flow

Based on the clients that we have served we have observed the following results from the ledger reconciliation activities:

  • Rs 998 cr Vendor unadjusted advances identified.
  • Rs 3,761 cr Debit note raised by Company but not booked by vendor and customers.
  • Rs 2,942 cr invoice was reversed by the vendor even though GST credit was claimed by the Company.
  • Rs 314 cr Credit note issued by vendor but not accounted by Company.
  • Rs 53 cr TDS deducted by customers but not recorded by Company.

All the above can have a direct and/or indirect impact on the cash flow of the Company. If the account team is able to identify such a mismatch on a timely basis and deep dives into it then it can convert itself from a cost center to a profit center.

The Power of Automated Reconciliation

Manual reconciliations, even with Excel – MATCH, HIGHLIGHT, or LOOKUP formulas, bear the risk of human errors. Any inefficiency or deficiency in reconciliation plagues the entire enterprise; it affects the credibility of financials, causes inefficient decision-making, and affects the goodwill of a company. Automated reconciliation is the solution to all the above issues.

Automation can simplify and streamline the tedious reconciliations process. With minimal human involvement, the entire process of vendor communication, follow-ups, tracking, gathering, and summarizing voluminous information works automatically in the background. The added leverage of real-time analytics makes companies proactive and efficient. 

The Role of Technology in Accounting

Above shared observations are the result of use of technology for reconciliation. Therefore, the CFOs and Account teams shall keep adopting the technologies which can help them in analyzing and interpreting the huge data that rests with them.

One such cloud-based automation software is Firmway, started by a team of Chartered Accountants to simplify time-consuming reconciliations. Using the latest technology such as AI, it performs reconciliations at par with industry standards and practices.

Technology makes reconciliations, be it vendor, bank, GST, or TDS, simple and efficient. Furthermore, it simplifies the communication of reconciliation differences through a world-class online action tracker. Therefore, prioritizing the adoption of technology in accounting and reconciliations is crucial for CFOs and Account teams, ultimately leading to a boost in cash flow.

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

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

Background

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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