Mistaking GSTR-3B Data as Business Turnover in Income Tax Return

Q: Can TaxBuddy help with reconciling GSTR-3B and turnover for ITR?

Yes, TaxBuddy offers tools to help reconcile GSTR-3B and turnover figures accurately. The platform assists with ensuring that your turnover is correctly reported and that all eligible Input Tax Credit (ITC) is claimed. TaxBuddy also provides expert assistance to ensure that your tax filings are error-free, helping you avoid discrepancies and penalties.

Bhavika Rajput
53 minutes ago
10 min read

When it comes to filing Income Tax Returns (ITR)for businesses, one of the most common areas of confusion is the distinction between GSTR-3B figures and turnover for ITR filing purposes. Both GSTR-3B and the financial turnover form essential parts of tax filings, but they serve different purposes, and mixing them up can lead to significant filing errors. For businesses registered under GST, GSTR-3B provides a summary of GST paid and collected for a specific period, while turnover refers to the total business revenue, which is reported in the ITR. Understanding how to reconcile these figures is crucial to ensure compliance with tax regulations and avoid discrepancies or audits. Let's delve into the differences between GSTR-3B and turnover, the importance of accurate reconciliation, and how recent changes have impacted this process for businesses.

Key Distinction Between GSTR-3B and Turnover for ITR
Why Mistaking GSTR-3B Figures as Turnover Causes Problems
Proper Approach to Reconcile GSTR-3B and ITR Turnover
Recent Changes Impacting This Process
Conclusion
FAQs

Key Distinction Between GSTR-3B and Turnover for ITR

GSTR-3B is a self-declaration filed monthly or quarterly by businesses to report GST-related transactions, including details about output tax liability, input tax credit, and other relevant information. It serves as a summary statement of a business's GST obligations for a given period. This form is used by the GST authorities to ensure that businesses are paying the correct amount of tax and are entitled to the right input tax credit (ITC).

On the other hand, turnover in the context of ITR refers to the total revenue a business generates through its operations, including sales of goods or services, before deducting any expenses. This figure is reported in the business’s financial statements, which are used to calculate taxable income for income tax purposes. Unlike GSTR-3B, which only reports GST-related information, turnover in ITR includes all sources of income, irrespective of GST collection.

The key distinction is that GSTR-3B is directly related to the GST process, while turnover in ITR represents a broader financial scope, encompassing all business revenue.

Why Mistaking GSTR-3B Figures as Turnover Causes Problems

Confusing GSTR-3B figures with turnover for ITR purposes can lead to significant issues in tax filings. GSTR-3B figures are only concerned with the tax liability and the taxes paid or received during the period under consideration. These figures typically only account for the GST component of business transactions, but not the total business income, which is what the ITR requires.

If businesses mistakenly treat their GSTR-3B figures as turnover, they may end up reporting lower income than what is actually earned, thereby underreporting their total turnover in the ITR. This underreporting can lead to inaccurate tax calculations, which might attract penalties, interest, and even audits by tax authorities. Furthermore, mismatched figures can lead to delays in refund processing, and businesses may miss out on deductions or credits that could have been claimed had the correct turnover figure been reported.

Proper Approach to Reconcile GSTR-3B and ITR Turnover

When filing the Income Tax Return (ITR), businesses need to ensure that the turnover figures reported in GSTR-3B match those reported in the ITR. Correctly reconciling these figures is critical to avoid discrepancies, penalties, or issues during the scrutiny of returns. Here’s a detailed approach to follow to ensure proper reconciliation:

1. Identify Total Sales

The first step in the reconciliation process is accurately identifying the total sales revenue of the business for the financial year. This includes both taxable and exempt sales. The total sales should align with the business’s financial records, which would be reflected in the Profit & Loss account (P&L) and balance sheet.

Taxable Sales: These are sales on which Goods and Services Tax (GST) has been charged. They will appear in both GSTR-3B and the business's financial statements.
Exempt Sales: Sales that are exempt from GST must also be included in the turnover reported in the ITR, though they won't appear in GSTR-3B.

Both taxable and exempt sales need to be combined to form the total turnover figure. This step ensures that the ITR reflects the total business activity, not just the sales subject to GST.

2. Exclude GST Amounts

GSTR-3B includes the GST collected on sales, but this GST amount should not be included in the turnover reported in the ITR. The turnover figure for ITR purposes should only represent the actual sales value without the GST component.

Example: If a business sells goods worth ₹10,000 and charges ₹1,800 as GST, the total amount reported in GSTR-3B will be ₹11,800 (₹10,000 + ₹1,800). However, for ITR reporting, the turnover should only reflect ₹10,000—the actual sales value, excluding the GST collected.
Action: When filing the ITR, businesses must subtract the GST component from the turnover reported in GSTR-3B to match the turnover as reported in the P&L account.

3. Account for Non-GST Sales

Some sales may not be subject to GST, such as those involving exempt goods or services or exports, and these will not appear in GSTR-3B. These non-GST sales must still be included in the turnover reported in the ITR.

Export Sales: If the business has export sales, which are typically zero-rated under GST, these sales must be included in the turnover for the ITR. These will not appear in GSTR-3B but are still part of the total sales for the business.
Non-GST Exempt Sales: Any other exempt sales, like those related to certain essential goods or services, should be added to the turnover. These are legitimate sales for business reporting but will not attract GST.

Therefore, businesses should ensure that all sales, whether subject to GST or exempt from it, are correctly accounted for when reconciling the figures for the ITR.

4. Reconcile Input Tax Credit (ITC)

Input Tax Credit (ITC) is an important component in GST filings, and it must be accurately reconciled between GSTR-3B and the ITR. The input tax credit shown in GSTR-3B should correspond with the expenses and purchases reported in the ITR.

Match ITC with Purchases: Businesses claim ITC on GST paid for purchases related to taxable sales. The ITC reflected in GSTR-3B should correspond with the input purchases and expenses in the financial statements. For instance, if a business purchases goods worth ₹10,000 (plus ₹1,800 GST), it should be eligible to claim ₹1,800 as ITC, which should appear in both the GSTR-3B and the ITR.
Eligible ITC: Only eligible ITC, as per the GST laws, should be claimed in the ITR. Any mismatch or ineligible ITC will lead to incorrect filing and may result in penalties.
GST Adjustments: Ensure that any adjustments made during the reconciliation process—such as discrepancies due to missed invoices or incorrect ITC claims—are addressed. This ensures that only legitimate ITC is claimed.

5. Verify Figures with Financial Statements

After reconciling the turnover, businesses should verify the figures reported in the ITR with their financial statements. This is an essential step in ensuring consistency across all filings and financial reports.

Profit & Loss Account: Check that the sales revenue and expenses reported in the P&L account match the turnover figures reported in the ITR. Ensure that any sales recorded in the books, including exempt and non-GST sales, are accurately reflected.
Balance Sheet: Verify the GST payable and GST receivable balances as recorded in the balance sheet against the GST amounts reported in GSTR-3B. This helps confirm that all transactions related to GST have been properly captured and reconciled.
Adjustment for Other Transactions: Businesses should also account for any other transactions that might affect the turnover, such as bad debts, discounts, or write-offs, which might impact the final figures reported.

6. Reconciliation Summary

The final step is to ensure that all figures from the GSTR-3B are reconciled with the financial records and ITR filings. This includes checking the following:

The total turnover from GSTR-3B should match the turnover reported in the ITR, excluding the GST collected.
The ITC claimed in GSTR-3B should match the input tax credit eligible as per the ITR.
All non-GST sales should be accounted for in the turnover.

This reconciliation ensures that the turnover reported in the ITR is consistent with the financial records of the business and accurately reflects the total business activity for the year. Any discrepancies or errors could lead to delays, audits, or penalties, so careful attention to detail is required during this process.

Recent Changes Impacting This Process

Recent changes in GST and Income Tax regulations have made the process of reconciling GSTR-3B and turnover even more critical. For instance:

GST Reconciliation with ITR: With the implementation of the GSTN system and increasing integration between GST and income tax systems, businesses are now required to ensure that their GSTR-3B filings match the financial records accurately. This includes reporting the correct turnover and reconciling any discrepancies between the GSTR-3B and the ITR.
Impact of New GST Rules: The recent amendments in GST rules, especially around the timing of input tax credit claims and sales exemptions, require businesses to be more diligent in reconciling their GST filings with their financial statements. Failure to do so may result in tax authorities flagging discrepancies, which could delay refunds or trigger audits.
Taxpayers' New Obligation for Reporting GSTR-9C: Taxpayers must file GSTR-9C (reconciliation statement) if their turnover exceeds a certain threshold. This process requires businesses to reconcile GSTR-3B with the audited financial statements, further stressing the need for accurate reporting.

These changes emphasize the importance of ensuring that GSTR-3B figures and ITR turnover are accurately reported and reconciled to avoid complications during the filing process.

Conclusion

Correctly reconciling GSTR-3B figures with turnover for ITR filing is critical to ensure accurate tax filings and avoid penalties. Businesses must understand the distinction between GSTR-3B and turnover, taking extra care not to confuse the two. The reconciliation process, while time-consuming, is necessary to ensure that all income is accurately reported and tax obligations are met. With recent regulatory changes further complicating this process, businesses must remain diligent in reconciling their GST and income tax filings. By doing so, they can avoid penalties, delays, and unnecessary audits, ensuring a smooth tax filing experience. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

Q1: Can I use GSTR-3B as the final turnover figure for ITR?

No, GSTR-3B only reflects the GST-related transactions and is not a comprehensive figure of your total turnover. When filing your Income Tax Return (ITR), it’s important to exclude the GST component from the turnover figure. GSTR-3B reports GST collected on sales and GST paid on purchases, but it doesn’t account for non-GST sales or other income sources. For an accurate turnover figure, you need to account for all your business’s sales, including non-GST sales, and exclude the GST component.

Q2: How can I reconcile GSTR-3B with my turnover for accurate ITR filing?

To reconcile GSTR-3B with your turnover, you need to:

Identify the total sales, including both GST and non-GST sales.
Exclude the GST component from the sales reported in GSTR-3B to avoid double-counting the GST in your turnover.
Ensure that all eligible Input Tax Credit (ITC) is accounted for correctly.
Compare the total turnover with your financial statements to ensure the figures match accurately.

This reconciliation ensures that the reported turnover in your ITR is correct and helps avoid discrepancies during tax filing.

Q3: What happens if I misreport turnover in the ITR?

Misreporting your turnover in the ITR can have serious consequences, including underreporting your income, leading to penalties, interest charges, or even tax audits. The Income Tax Department may flag discrepancies between your financial records and tax returns, triggering an investigation. Ensuring that the turnover reported is accurate and well-reconciled with your GSTR-3B and financial statements helps avoid these issues. If an error is identified, you may need to file a revised return.

Q4: Are there any penalties for mismatching GSTR-3B and turnover figures?

While there may not be immediate penalties for mismatched GSTR-3B and turnover figures, it can lead to delays in processing your ITR. The Income Tax Department may initiate audits to verify the accuracy of the figures. These audits can result in fines, interest charges, or penalties if discrepancies are found. Therefore, it's essential to ensure that GSTR-3B and your turnover figures match and are accurate before submitting your tax return.

Q5: How do I deal with exempt sales in my ITR?

Exempt sales must be included in the turnover reported in your ITR, even though they do not appear in GSTR-3B. These sales may be exempt from GST, but they still contribute to your total income and must be reported accurately in your financial statements. When preparing your ITR, ensure that these exempt sales are included in your turnover calculation, as they are part of your business’s overall income.

Q6: What changes have been made to GSTR filings that impact turnover reporting?

Recent changes in GST regulations require businesses to reconcile GSTR-3B with their financial records more accurately. This includes ensuring that the correct Input Tax Credit (ITC) is claimed and that sales exemptions are properly accounted for. Additionally, businesses must accurately report their turnover, including any exempt sales or transactions that were not subject to GST, to avoid discrepancies between GSTR-3B and the ITR.

Q7: Do I need to file GSTR-9C if my turnover is below the threshold?

GSTR-9C is required if your turnover exceeds the prescribed threshold. This form is used for reconciling the financial statements with the GSTR-9 (annual GST return). If your turnover is below the threshold set by the GST authorities, you are not required to file GSTR-9C. However, even if you don’t need to file GSTR-9C, you still need to ensure that GSTR-3B and turnover figures match accurately when filing your ITR.

Q8: How does the GSTN system impact ITR filings?

The Goods and Services Tax Network (GSTN) system is integrated with the income tax filing system. This integration makes it essential for businesses to ensure that their GST filings align with their financial statements to avoid discrepancies when filing their ITR. The GSTN system helps the Income Tax Department cross-check the details, making it crucial for businesses to reconcile their GSTR-3B with their turnover figures before submitting their tax returns.

Q9: What should I do if there’s a mistake in my GSTR-3B filing?

If there is a mistake in your GSTR-3B filing, you should file an amended return as soon as possible to correct the error. Once the amended return is filed, ensure that the corrected figures are reflected in your ITR to maintain consistency. Any discrepancies between your GSTR-3B and ITR could delay the processing of your return or result in penalties.

Q10: Can TaxBuddy help with reconciling GSTR-3B and turnover for ITR?

Yes,TaxBuddy offers tools to help reconcile GSTR-3B and turnover figures accurately. The platform assists with ensuring that your turnover is correctly reported and that all eligible Input Tax Credit (ITC) is claimed. TaxBuddy also provides expert assistance to ensure that your tax filings are error-free, helping you avoid discrepancies and penalties.

Q11: How do I ensure I’m claiming the right input tax credit?

To ensure you are claiming the right Input Tax Credit (ITC), you should regularly reconcile your GST returns with your financial statements. TaxBuddy helps you verify your ITC by reconciling your GST records with your business’s tax filings. This process ensures that you claim the correct credits and avoid errors that could lead to penalties.

Q12: How often do I need to reconcile GSTR-3B with turnover?

Reconciliation of GSTR-3B with turnover should be done regularly, especially before filing your ITR. You should reconcile these figures at the end of each GST return filing period, and it’s highly recommended to do so before the ITR filing deadline. Regular reconciliation ensures that your tax filings are accurate and helps you avoid discrepancies during tax filing.