Input Tax Reconciliation under GST is about matching the in-house Purchase Register and the GSTR-2A, which is auto populated based on GSTR 1 filing by the respective suppliers of the Enterprise. GST Input Tax Reconciliation is important to ensure timely and accurate input tax credit as well as for the correctness of various returns. Incorrect ITC claims affect the compliance health of the organization and it is a fact that many organizations are receiving notices from the GST department for this. Wrong or delayed GST credit means leaving money on the table and it can affect top line of the company by approximately 5%-6%. For large enterprises, this figure in Rupees could run into tens of Crores.
The enterprises must therefore reconcile their purchase data on a regular basis with GSTR 2A to claim the eligible Input Tax Credit (ITC).
The process of reconciliation becomes complex for large organizations with multiple legal entities, multiple GSTNs, large vendor base and large data volumes. There may also be timing issue as some suppliers may file in one month, while customer processes the invoices in coming months. Many organizations lack proper controls in their Accounts Payable (AP) processes. For instance, in many cases, supplier invoices are being tracked manually which results in large volumes of invoices appearing in GSTR 2A but are not accounted for input tax credit. Manual data entry for invoices also adds to reconciliation issues.
The taxpayers are required to continuously keep an eye on any discrepancy or mismatches that may affect the ITC claim and should try to rectify the errors.
Executing the reconciliation manually or with the use of a basic excel sheet is a tedious and time-consuming task and does not guarantee 100% accuracy. This calls for a proper process and system for executing the reconciliation effectively and efficiently.
Key Challenges: (Based on our sample size)
- More than 95% enterprises have reconciliation issues with GSTR-2A & PR (Purchase Register) data.
- On average, at least 30% of GSTR-2A data is not present in PR, indicating gaps in AP process. This might result into delayed credit as well as mis-representation of accounts.
- Around 50- 60% of enterprises face challenges in generating proper PR from their ERP
- On an average, most enterprises achieve only around 15%-20% full matches when they run their GST reconciliation using basic excel/system.
AI/ML based Technology Service:
An AI/ML (Artificial Intelligence/ Machine Learning) based technology platform helps the organization in understanding different types of invoices. An important feature would be to extract information from scanned copies of invoices and create purchase register automatically. This also helps in understanding the different formats of Purchase Registers and reconciles them with GSTR2A.
It also reconciles voluminous data faster with high accuracy. Categorization of data is efficiently done in different buckets like matches (auto match and AI based match), mismatches, invalid data and missing data. It also does further classification of various mismatches into single attribute mismatch, multiple attribute mismatch etc.
Detailed categorization saves time and assists the Accounts Team to rectify the errors/mismatches in an optimal manner. The AI based platform may result in 60-70% matches in the first reconciliation itself- thus freeing up the bandwidth of the Accounts Team to focus on true mismatches.
Besides, continuous learning from different sets of data and use cases of multiple enterprise scenarios ensures evolving and higher accuracy of the AI/ML system over time – thus resulting in significant benefits to enterprises.
Customized dashboards and reports help the higher management to have a clear picture of the GST at a higher level. The Accounts Team become more effective and empowered in closing mismatches with their vendors.
The reconciliation of records by way of follow up between the vendor and enterprise teams can be a very time-consuming process. This can also be automated by using RPA based technology.
Solution with AI/ML based technology:
- Customized and automated solutions that derive data from multiple accounting data sources and generates a clean PR for the Enterprise
- Executing Reconciliation with AI based platform resulting in around 60-70% matches with cutting-edge technology.
- Address the critical areas and optimize AP Processes to the maximum possible extent.
- Technology assisted platform is fast, accurate and very reliable.