Filing GST returns is a routine task for businesses. When filing them, ensuring their accuracy is just as important as filing them on time. To maintain accuracy, reconciliation of returns on a regular basis is necessary. One of the most critical reconciliations in GST is GSTR-1 vs. GSTR-3B reconciliation.
Many businesses assume that filing both returns is enough, but if the data of vendors and company’s transactions in these returns don’t match, it can lead to GST notices, penalties, and even cash flow issues. Moreover, now with the introduction of GSTR-1A, the government also advises an in-depth reconciliation of amendments mentioned in GSTR-1A with GSTR-3B.
This blog will break down why the reconciliation of GSTR-1 and GSTR-3B is necessary, common mismatches that occur, how to rectify these mismatches, and how you can perform GSTR-1 and 3B reconciliation
Understanding GSTR-1 and GSTR-3B
Before we discuss their reconciliation, let’s first understand what these two GST returns are and why they need to be compared.
- GSTR-1 is a detailed return where businesses report all their sales invoices for a given period. This return helps the government track taxable sales and helps your buyers claim input tax credit (ITC).
- GSTR-3B is a summary return where businesses report their total sales, and the GST paid for the month. Unlike GSTR-1, it doesn’t have invoice-level details.
Since GSTR-3B is a summarized return and GSTR-1 contains invoice-wise details, the tax liability declared in both should ideally match. If they don’t, it indicates a reporting mistake or tax miscalculation, which can lead to compliance issues.
Why is GSTR-1 vs. GSTR-3B Reconciliation So Important?
It’s easy to assume that once both returns are filed, your GST compliance is done. But the reality is different. If GSTR-1 and GSTR-3B don’t match, you could be at risk. Here’s why this reconciliation is important:
1. To Avoid GST Notices and Rule 88C Compliance
The GST department actively monitors mismatches between these returns. If your GSTR-1 shows higher sales than GSTR-3B, the tax authorities may assume you have underreported GST liability, leading to a notice under Rule 88C.
Rule 88C of the CGST Rules was introduced to tackle underreporting in GSTR-3B. Under this rule:
- If there’s a mismatch where GSTR-1 shows higher tax liability than GSTR-3B, the taxpayer will receive an intimation in Form DRC-01B.
- The taxpayer must either pay the difference or provide a valid explanation within 7 days.
- Failure to respond may lead to further action, including demand notices and penalties.
Example: If a business reports ₹10 lakh in taxable sales in GSTR-1 but only ₹8 lakh reflects in GSTR-3B, the GST department can send an auto-generated notice under Rule 88C demanding an explanation or tax payment on the ₹2 lakh difference.
2. To Ensure Correct Tax Payment and Avoid Interest
If GSTR-3B reports a lower tax amount than GSTR-1, you might have underpaid GST, resulting in interest (18% per annum) and possible penalties (10% of underpaid amount, subject to a minimum of INR 10,000). On the other hand, overpaying in GSTR-3B due to reporting errors could affect cash flow and require a refund process.
3. To Prevent ITC Claim Issues for Buyers
Your customers rely on your GSTR-1 filings to claim input tax credit. If there’s a mismatch, their ITC might be blocked, leading to disputes, delayed payments, and compliance risks for them. This can impact business relationships, especially with large buyers who strictly monitor their ITC claims.
4. To Maintain Accurate Financial Records & Avoid Audit Issues
Tax authorities frequently conduct scrutiny assessments and audits based on discrepancies in returns. If GSTR-1 and GSTR-3B are not reconciled, businesses may face:
- GST audits under Section 65 or Section 66 of CGST Act
- Investigations under Section 73/74 for tax evasion
- Additional tax demands with interest and penalties
Common Reasons for Mismatches Between GSTR-1 and GSTR-3B
Even businesses that maintain their financial records carefully can face reconciliation issues. Here are some of the most common reasons why:
1. Difference in Sales Figures
- Businesses may record sales in different periods (e.g., reporting an invoice in GSTR-1 of October but including it in GSTR-3B of November).
- Excess Credit Note Amounts shown in GSTR-3B rather than GSTR-1.
2. Incorrect Tax Rates Applied
- Charging incorrect GST rates (e.g., applying 12% instead of 18%) leads to mismatches in taxable value and tax liability.
- Intra-state sales wrongly reported as inter-state or vice versa, leading to incorrect CGST/SGST vs. IGST reporting.
3. Missing Invoices or Debit/Credit Notes
- Forgetting to include certain invoices or credit/debit notes in one of the returns.
- Incorrectly adjusting credit notes against different invoices, creating reconciliation challenges.
4. Amendments Not Updated Properly
- Invoice amendments made in GSTR-1 but not reflected in GSTR-3B.
- Reporting revised figures without adjusting previous periods’ values correctly.
5. Errors in Zero-Rated or Export Sales
- Misreporting export sales or supplies to SEZs as taxable sales.
- Errors in claiming GST refunds or ITC on zero-rated supplies.
Step-by-Step Process to Reconcile GSTR-1 and GSTR-3B
Below is a step-by-step guide to accurately match GSTR-1 and GSTR-3B.
Step 1: Download Both Returns for the Same Period
Before starting reconciliation, download both returns for the same tax period from the GST portal.
Where to download:
- Log in to the GST portal and go to the Returns Dashboard.
- Select the relevant financial year and month.
- Download the JSON or Excel files for GSTR-1 and GSTR-3B.
Step 2: Compare Taxable Values in Both Returns
The next step now is to match the total taxable value declared in GSTR-1 with that in GSTR-3B.
Check the following categories:
- B2B supplies, which include GST and invoice-wise details.
- B2C invoices.
- Export sales and SEZ supplies, which are made without GST.
- Reverse charge supplies, which need to be accounted for separately.
- Advance Received.
- Liabilities Adjusted.
If there are differences, check if any invoices were missed or entered in the wrong period. Also, verify if any amended invoices from previous months are impacting the reconciliation.
Step 3: Match Tax Amounts in Both Returns
Once the taxable values match, the next step is to ensure that the tax liability reported in both returns is the same88c
Verify tax amounts for:
- CGST and SGST, applicable for intra-state sales.
- IGST, applicable for inter-state and export sales.
If there are differences, review whether an incorrect tax rate was applied. Also, check whether a transaction was incorrectly classified as intra-state or inter-state.
Step 4: Identify Mismatches in Credit Notes and Debit Notes
Credit notes issued for sales returns, discounts, or price reductions should match in both returns. Similarly, debit notes issued to increase taxable value should also be checked. Common errors include forgetting to report credit or debit notes in GSTR-3B or applying adjustments in a different period.
Step 5: Check for Amendments and Timing Differences
Many mismatches arise due to timing differences, where businesses report invoices in GSTR-1 of one month but GSTR-3B in another. Cross-check the amendment tables in GSTR-1 to ensure that corrected invoices match the GSTR-3B data.
Step 6: Validate B2C and B2B Reporting
Businesses sometimes misreport business-to-business sales as business-to-consumer sales or vice versa. Check for large B2C invoices above 2.5 lakh rupees to determine whether they should actually be classified as B2B. Also, verify if any B2B invoices are missing from GSTR-1 but have been claimed in GSTR-3B input tax credit.
Step 7: Pay Tax Shortfall Using DRC-03 (If Any)
If a mismatch results in underpayment of GST, the difference must be paid through Form DRC-03.
- Log in to the GST portal and navigate to “User Services” → “My Applications”.
- Choose “Intimation of tax ascertained through Rule 88C” (if applicable).
- If Rule 88C is not triggered, select “Application for voluntary payment – Form DRC-03”.
- Enter the tax shortfall and pay using the electronic cash/credit ledger.
- Submit the form and keep a copy for records.
Conclusion
GSTR-1 vs. GSTR-3B reconciliation is a critical compliance step that businesses cannot afford to ignore. However, performing this reconciliation once a year or so is not enough. But, given the amount of time and effort it requires, it is not possible to perform regular reconciliation without automation tools. GSTrobo® is one such tool that can perform PAN-level reconciliation in seconds. It also identifies mismatches in every little detail, so no errors go unnoticed. Book a demo to understand how GSTrobo® can help.
