[GST]: Why reconciliation is necessary?

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[GST]: Why reconciliation is necessary?

1. Missing of input tax credits – We have observed that many organizations are missing to account for countless invoices they receive. This means loss of input tax credits leading to paying more tax than necessary. Reconciliation will ensure that you get all the required input tax credits and save a huge amount of taxes in the process.

2. Audit Process and internal financial control – Even though reconciliation is not mandatory anymore, the infrastructure to do so is still available. This means auditors will be able to get this data easily and logically, they will be checking your inward supply data against the 2A form. In case of mismatches, you’ll have to do reconciliation for the entire year/quarter at once. So, it is advisable to do so incrementally every month and have reconciled records readily available for audits.

3. Tax department notice – Mismatches between your filings and your vendors’ filings could potentially trigger a notice from the government. This could have significant financial impact as the penalties are usually quite high. Performing reconciliation every month would ensure your vendors’ are also filing their returns with the same data as you expect them to use. In doing so, you can avoid any potential notices from the government. due to the mismatches.

4. Vendor Rating – Performing reconciliation on a regular basis would give you data points to determine the list of vendors which are doing the right thing and which ones are not following the right process, requiring you to follow up in solving the mismatches. This would eventually bring efficiency to your process through rating of those vendors.

5. Make corrections to your books of accounts – The filing of annual returns and audit will require matching of the amounts, as per the GST returns and the books of accounts. This makes it necessary to reconcile both these records and make the necessary rectifications in the books of accounts. This will certainly save you from interest and penalties which may be levied later, if it’s too late.