GSTR – 2A Reconciliation and Why it Could be Important Right Now

Let’s face it. Nobody likes preparing GSTR-2A reconciliation. It is really lengthy and takes a whole lot of work hours to complete properly. It also requires a person who knows something about ITC and returns filing.

Back in the year 2017, when GST was initially introduced, the so-called “auto-populated GSTR 2” was real eye-candy for all. But, it never took off from the paper, GSTR – 2 is still kept in abeyance. Instead, we are left with a GSTR 2A and GSTR 3B and an everlasting difference between these two that need to be reconciled.

Let’s look into some compelling reasons for preparing GSTR – 2A.

Reason 1: Rule 36 (4)

From 2017 till Sep 2019, every businessmen and consultant used to consider GSTR 2A reconciliation as unnecessary. They were partially right, the entries in GSTR 2A did not affect any tax liability nor asset of the taxpayer. Thus the taxpayers chose to ignore the same.

This changed from amendments in Rule 36 where the taxpayer is restricted to claim ITC up to 110% of total eligible ITC under GST 2A. This suddenly made GSTR 2A relevant. Now it is more important for the business to do a GSTR 2A reconciliation along with GSTR 3B.

What is Rule 36(4) implication?

Suppose you have purchased goods worth Rs.1,00,000 ( ITC Rs. 18,000 ) from various suppliers. You have all the invoices and fully complied with conditions for availing ITC. Normally, we should be allowed to claim the entire Rs.18,000 as ITC in GSTR 3B. But, this rule forced us to verify the entries in GSTR 2A. Now, when we look at 2A, we might see purchases worth Rs.80,000  ( ITC Rs.14,400) only have been reflected here (because other suppliers have not yet filed GSTR 1). Now, we can only claim a maximum amount of ITC Rs.15,840 ( 110% of Rs. 14400). This could result in one taxpayer to get penalized for a mistake of another taxpayer. This results in the taxpayer to require additional working capital to pay taxes.

In case you are not preparing a reconciliation, once FY 2019-20 audit gets started Rule 36(4) would make a grand comeback. The entire years GSTR 2A would be required to be reconciled and adjustments would be needed for ITC claim.

Thus, it is entirely up to the business to compute any additional liability and pay off it with interest. However, the audit for FY 19-20 would take at least another couple of years, thus the interest would keep accruing if the taxpayer doesn’t prepare proper reconciliation.

What should we do about it?

– In case of recurring payments involving lakhs of amount, ask the supplier to attach a copy of the previous month’s proof of filing GSTR 1.

– Monthly reconciliation with our purchase ledger and GSTR 2A need to be prepared on a continuous basis.

– Also, make sure to file your GSTR 1, otherwise, the recipient could easily get frustrated because they are unable to claim ITC and we could end up losing a client.

Reason 2: Notice from GST department.

GST department has started sending GST scrutiny notices under section 61 to various taxpayers based on GSTR 9 filed for FY 2017-18. One of the recurring query made by the department is regarding GSTR 2A reconciliation. According to these notices received by various taxpayers, the department is taking viewpoints as follows.

i) If the ITC in GSTR 2A > ITC in GSTR 3B: The department is claiming that the business is receiving undisclosed goods and services purchased from various vendors and the same has not been disclosed. The department is proposing to the taxpayers that they must pay off GST output liability by adding 15% of GP on such undisclosed goods.

For, eg. If the supplies in GSTR 2A is Rs.20,000 (ITC being Rs.3600 ) and GSTR 3B is Rs.15,000 ((ITC being Rs.  2700 ). The Department says that Rs.5000 is undisclosed purchases and this would have been used for making undisclosed supplies which could be estimated by adding a gross profit of 15%, i.e additional deemed unrecorded supplies of Rs.5,750. Thus the department is claiming an 18% tax on this so-called “undisclosed supply” along with interest.

ii) If the ITC in GSTR 2A < ITC in GSTR 3B: here, the department takes a U-turn. Here, the department goes with the view that the taxpayer has taken excess ITC and requires the taxpayer to pay back such amount.

Both of the above views taken by the department is punishing honest taxpayers. The difference between GSTR 2A and GSTR 3B could be due to many things. One of the major reasons for the difference being, back in 2017-18, nobody even knew they had to file multiple returns. Thus many had filed returns wrongly, affecting GSTR 2A.

It is more or less sure that one of these notices are coming for most of the taxpayers. If you already have, the best way to reply to such a notice would be to hand over a proper GSTR 2A reconciliation.

Reason 3: For refund claimers.

Another class of Taxpayers, who need to keep a close eye on GSTR 2A are Refund claimants. Under GST Law, businesses engaged in various exports as well as various other supplies are eligible for a refund of tax.

In case of a refund of taxes by “opting Export without paying IGST”, taxpayers are required to prove to the department that they have actually paid the tax on inward supplies. A very efficient manner for proving the same is to show respective entries in GSTR 2A. Thus, it is more important for the service export business to ensure that all the purchases are reflected on GSTR 2A. Thus a proper reconciliation would allow the business to follow up with various suppliers to ensure GSTR 2A is properly updated.

There are many tools available for GSTR 2A and if you find it really difficult to get it done, it is better to engage a consultant for doing the same or to include ‘GSTR 2A reconciliation’ into the scope of work of existing consultants.

So, if you think any of the above reasons is applicable for your business also, then it is better to plan ahead and do your reconciliation. Thus, it is advisable to prepare your reconciliation on a timely basis.

Feel free to raise your queries.