GSTR-1 & GSTR-3B Mismatches: How to Correct & Avoid Penalties

GSTR-1 and GSTR-3B, the two most important GST returns, and a small discrepancy between them can create significant compliance problems. GSTR-1 and GSTR-3B mismatches result in notices, result in interest, penalties, and even block Input Tax Credit (ITC) claims for your customers.

This blog explains the consequences of the differences between GSTR-1 and GSTR-3B, ways to correct GSTR-1 & GSTR-3B mismatches, and preventive measures to avoid fines and notices.

Understanding GSTR-1 & GSTR-3B

GSTR-1 is a comprehensive return that captures all invoices of outward supply issued by a business for a specific tax period and allows the government to accurately monitor the sales subject to GST, and gives the buyer the ability to claim input tax credits based on the GSTR-1 invoices reported on the GSTR-1 return.

Conversely, GSTR-3B is a summary return that is required to be filed on a monthly basis by taxpayers. It must be submitted before the end date (20th of the following month) of every month to declare information for each month regarding supply, GST paid, Input Tax Credit (ITC) received, and reverse charge Purchases made during that month, all of which together assist in monitoring and controlling tax obligation on a monthly basis.

Mismatches between GSTR-1 and GSTR-3B can create reconciliation issues and disputes regarding the ITC, and compliance notices to the business.

Consequences of GSTR-1 and GSTR-3B Mismatches

The GST department closely monitors for discrepancies between GSTR-1 and GSTR 3B. If any mismatches are detected, the GST Authority may issue a notice under Rule 88C for clarification on the differing amounts or payment of the tax difference if applicable.

If mismatches in GSTR-1 and GSTR-3B are not resolved on time, an organisation will incur the following:

1. Interest of 18% per annum on the GST amount not paid.
2. Penalties will be assessed based on 10% of the unpaid GST amount, with a minimum penalty of ₹10,000.
3. Delayed or denied customer Input Tax Credit causing customer disputes, delayed payments, and potential reputational risks.
4. Increased scrutiny of the business’s compliance by GST authorities, with repeat notices sent for additional monitoring.
5. Restrictions on filing subsequent GST returns on the portal until the pending returns are filed and dues are cleared

Common Reasons for GSTR-1 & GSTR-3B Mismatches

Mismatches are caused by differences in reporting and timing. The most common causes are:

1. Reporting Timing Differences: The invoices reported in GSTR-1 in one period may be reported in GSTR-3B of another period, and thus give different totals.

2. Incorrect Reporting Across Tables: The sales can be properly entered in GSTR-1, but are recorded in the incorrect table in GSTR-3B (the zero-rated supplies vs the regular sales).

3. Missing or Omitted Invoices: There can also be some B2B or inter-state supply that is recorded in GSTR-1 that does not reflect in GSTR-3B, or vice-versa.

4. Tax Classification Errors: Tax amounts may be reported under a different tax head - CGST/SGST vs IGST, and this results in a variance in figures.

5. Amendments Not Aligned: The changes made in credit/debit notes or after filing the GSTR-1 but before filing the GSTR-3B may cause discrepancies in both returns unless they are updated.

6. Mistakes While Entering Data: Enter the data carefully; clerical mistakes can lead to inconsistencies in the data.

Identifying the root cause is the first step to successful reconciliation.

How to Correct GSTR-1 & GSTR-3B Mismatches

To resolve mismatches, follow the steps below:

1. Determine The Mismatches: The invoice-level data of GSTR-1 should be compared to the GSTR-3B summary report. It is advised to use accounting software or automated tools to identify discrepancies quickly.

2. Amend GSTR-1 if Needed: If you've reported an invoice incorrectly, i.e., with the wrong GSTIN number, wrong value, wrong tax head, or missed out on an invoice, you can amend it on the following GSTR-1 filing period. Always remember to amend an invoice correctly.

3. Correct GSTR-3B Tax Liabilities: Once you file your GSTR-3B, you can no longer correct it. If you accidentally under-reported your net tax liability or over-reported it, simply correct that amount when you file your next GSTR-3B. Make any additional tax payments or reverse excess ITC, or both, as appropriate, including applicable interest.

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4. Keep your documentation clear: You should keep records of all invoices, notes about reasons for making adjustments, and communicate with vendors, especially about issues related to ITC that depend on supplier GSTR-1 filings. Having a good paper trail will back up your case if you receive a notice from GST authorities.

5. Respond to the Notice on time: Taxpayers who receive a Rule 88C notice from the GST authorities due to mismatched returns have two options: Pay the difference in GST or furnish a valid explanation within the timeframe specified by the notice to prevent further action from the GST authorities. By correcting mismatched returns, taxpayers not only can prevent penalties but can also improve their compliance record.

How to Avoid GSTR-1 & GSTR-3B Mismatches: Some common practices

When it comes to GST compliance, it's always better to take preventive measures. By putting a few simple practices in place, you can drastically reduce the risk of GSTR-1 and GSTR-3B mismatches, saving you unnecessary notices and penalties.

1. Reconcile Returns Before Filing: Regular GSTR-1 and GSTR-3B reconciliation is important to identify potential timing differences and input errors on time.

2. Use automation tools and technology: Use an accounting system or GST reconciliation tools to compare GSTR-1 and GSTR-3B returns automatically. This will allow taxpayers to reduce the possibility of making input errors due to manual entry.

3. Have Consistent Reporting Dates for Invoices: It's important to keep the reporting date for your invoices consistent across both your GSTR-1 and GSTR-3B. Having the reporting periods inconsistent is a very common reason for the mismatch between these two returns.

4. Provide training to your accounting team: To minimize the errors in reporting of zero-rated supplies, IGST/CGST/SGST, credit and/or debit notes, provide training to your accounting team on the specifics of GST tables and categories.

5. Coordinate with Vendors: When relying on suppliers to ensure GSTR-1 is filed accurately and within the time frame specified by law, follow up with them periodically.

6. Plan for Amendments Early: It is advisable to have any adjustments (credit notes, refunds, advances) scheduled for reporting purposes well in advance of the filing date to ensure that they accurately reflect in both your monthly and annual returns.

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Conclusion

To run a business smoothly, regular GSTR-1 and GSTR-3B reconciliation is important. Mismatches between GSTR-1 and GSTR-3B is considered a costly error that could create a Compliance Risk, fine the company, and disrupt how an Input Tax Credit (ITC) is applied. To fix this issue, MYGST Refund has developed a CFO Dashboard. Using this software, you can track the mismatches, avoid errors, and ensure GST compliance. This will help businesses avoid penalties and notices.

Frequently asked questions

1. What are GSTR-1 and GSTR-3B mismatches?
Mismatch means when the amount for a taxable supply or liability for tax reported under GSTR-1 (detailed return) is not the same as what was reported under GSTR-3B (final/summary) as an aggregate amount.

2. What is required if there is a difference between GSTR-1 and GSTR-3B?
Any differences that occur need to be examined and reconciled - either through amendments made to future filings or adjustments made to future GSTR-3B tax liabilities. If discrepancies persist, then authorities will issue Notices to the taxpayer.

3. What happens if there is a GST mismatch?
If GST does not cover the tax due to mismatches, then interest of 18% per annum, along with a penalty for the mismatch (e.g., 10% of the amount of tax difference), may also apply. Taxpayers may receive Notices or be penalised if they do not correct these discrepancies.

4. What will happen if an invoice for a sale is missed in GSTR-3B and GSTR-1?
Invoices that have not been reported must be amended on the following tax return when filing GSTR-1. Any tax liability associated with the missed invoice should be posted in the next GSTR-3B return. Keeping track of all documentation for missed entries will ensure proper compliance.

5. Is there a general turnover limit for filing GSTR-3B?
There is no general turnover limit for filing GSTR-3B. While most are required to file it every month, those who file under the QRMP scheme are permitted to file on a quarterly basis but must pay monthly taxes owed.