GST Reconciliation: How Companies can reduce the notices from the GST Department

Over the last few years, GST compliance in India has become almost entirely technology driven. The GST department now uses advanced data analytics to automatically match GSTR-1, GSTR-3B, GSTR-2B, GSTR-9, e-invoices, e-way bills and other returns. Even minor mismatches or incomplete reporting can trigger notices in forms such as ASMT-10, DRC-01 or DRC-01A.

Many businesses assume that timely filing and payment of GST is enough to stay out of trouble. In reality, a large number of notices are not about tax evasion but about misreporting, non-reporting, or mismatches between various GST returns, often due to partial filing of certain tables or modules. A well-planned, ongoing GST reconciliation between books of accounts and GST returns can significantly reduce the risk of notices, demands, and costly litigation.

What is GST reconciliation?

GST reconciliation refers to the process of matching among the following:

• Books of accounts

• Sales register

• Purchase register

• GSTR-1

• Invoice Management System Portal (‘IMS’)

• GSTR-3B

• Cash ledgers at GST portal

• Input Credit ledgers at GST portal

• E-invoices

• E-Way Bills

• Annual returns in GSTR-9

The purpose of reconciliation is to identify differences, rectify errors, and ensure that the tax liability and input tax credit reported to the GST Department accurately reflect the company's books.

Why are GST notices increasing?

The GST department now relies heavily on data analytics for deciding to whom notices are to be sent. Such data analytics includes reconciliation amongst the below:

• GSTR-1 vis-à-vis GSTR-3B
• GSTR-1 vis-à-vis GSTR-9
• GSTR-3B vis-à-vis IMS
• GSTR-1 vis-à-vis E-invoices generated
• GSTR-1 and GSTR-3B vis-à-vis E-way bills generated

Upon locating differences, the GST system automatically issues notices in form ASMT-10, DRC-01/01A. Unfortunately, many companies discover these differences only when a notice is received.

What kind of differences are generally noticed in notices issued by GST departments?

Let’s try to understand the areas where differences arise and are noted by the GST department.

GSTR-1 vis-à-vis GSTR-3B: This is one of the most scrutinised reconciliations under GST.

GSTR-1 contains invoice-wise details of outward supplies, whereas GSTR-3B contains summary tax liability and tax payment details. Where the value of sales as reported in GSTR-1 differs from the sales values reported in GSTR-3B, the GST system may issue an intimation requiring explanation of such differences.

While comparing GSTR-1 vis-à-vis GSTR-3B, the GST department also compares the GST liability reported in GSTR-1 with the GST liability discharged through GSTR-3B. In cases of differences in tax values, a notice could be issued. Non-filing of tables in GSTR-1 like HSN-wise summary, summary of documents issued, reporting of exempt incomes could also result in similar notices despite having no tax impact.

GSTR-1 vis-à-vis GSTR-9

GSTR-9 is the annual return filed by business owners comprising details relating to the sales made during a financial year, tax liability on the same, value of inward supplies on which GST is payable under Reverse Charge Mechanism (RCM), comparison of GST claimed in GSTR-2B vis-à-vis available in IMS and ITC claimed during the financial year.

The said GSTR-9 is matched with GSTR-1 through automated systems. In such cases, the following types of differences are generally located:

a. Sales reported in GSTR-1 but not reported in GSTR-9

b. Taxes reported in GSTR-9 differ with those mentioned in GSTR-3B

c. Reverse charge is not reported in GSTR-9 when the same is reported in monthly GSTR-3B

d. Sales of the preceding year reported in the current year’s GSTR-1 which are not reported in GSTR-9

In all such cases, we observe issuance of notices by the department.

GSTR-3B vis-à-vis IMS

IMS is the Invoice Management System portal which shows the details of invoices in respect of which a business owner can claim Input Tax Credit (ITC) during a particular month.

In cases where ITC claimed in GSTR-3B is more than that available in IMS, it could result in an instant notice.

GSTR-1 vis-à-vis E-invoices generated

Many businesses are required to generate e-invoices depending upon their turnover. In cases where e-invoices are generated, the same are required to be reported in GSTR-1 for the same month.

Non-reporting of such e-invoices or reporting with different particulars like tax, invoice number, date, etc., could also result in issuance of mismatch notices.

GSTR-1 and GSTR-3B vis-à-vis E-way bills generated

Similar to matching in GSTR-1 vis-à-vis e-invoices, the department also matches GSTR-1 and GSTR-3B vis-à-vis e-way bills generated with particulars like invoice number, invoice value, tax value, date of supply, etc.

Non-reporting of e-way bills generated during a particular period could result in tax demands.

Approach to reduce GST notices

Step 1: Conduct monthly reconciliation

The biggest mistake made by businesses is performing reconciliation only at year-end.

Monthly reconciliation allows timely correction of errors before notices are generated.

A standard monthly GST reconciliation checklist should cover:

- GSTR-1 vs Sales Register

- GSTR-3B vs Books

- GSTR-2B vs Purchase Register

- E-Invoice vs Sales Register

- ITC payment by the suppliers on a timely basis 

Step 2: Verify vendor compliances on a monthly basis

Verify whether the vendors from whom you have availed goods or services and on whose invoices GST is charged have filed their GST returns on a timely basis and reported the relevant tax invoice in the IMS portal. Vendors with repeated defaults should be reported to higher management for proper action.

Step 3: Maintain GST-related documents and reconciliations

Maintain GST registration certificates and other KYC documents before onboarding a new vendor with your organization.

Make a preliminary review of GST returns filed by such vendors through the GST portal. Maintain all invoices originally issued by vendors, maintain sales, purchases and stock movement records and related reconciliations.

Step 4: File annual returns after proper reconciliation with monthly returns

Before filing GSTR-9, businesses should reconcile:

- Audited Financial Statements

- Trial Balance

- GSTR-1

- GSTR-3B

- GSTR-2B

- Electronic Credit Ledger

Annual reconciliation helps identify historical mistakes and provides an opportunity to regularize certain issues before departmental scrutiny.

How India Law Offices can help

Our team assists companies in setting up strong GST compliance frameworks to minimise the risk of notices and litigation. We conduct periodic GST checks, perform detailed reconciliations across GSTR-1, GSTR-3B, GSTR-2B/IMS, e-invoices and e-way bills, and help rectify mismatches before they escalate into ASMT-10 or DRC-01 proceedings. We also support clients in responding to GST notices, preparing reasoned replies, coordinating with auditors for GSTR-9/GSTR-9C, and implementing vendor-compliance monitoring processes tailored to your business.