GST Year-end checks & validations: A holistic approach

Reconcile GSTR-1 & GSTR-3B against Financials

As a very fundamental starting point, one must ensure that details of outward supplies as reported in Form GSTR-1 and Form GSTR-3B are matching with each other (w.e.f. October 2025, outward liability in GSTR 3B will be locked to ensure data reported in Form GSTR 1 is paid as outward supply in Form GSTR 3B) and such reconcile fully with our sales register, which in turn flow to Profit and Loss Statement. For multi-state taxpayers, total of supplies reported in all such returns should reconcile total revenue reported in Profit and Loss Statement. Discrepancies in basic turnover details can easily lead to queries, especially during Department audits.

Rate Checks

Once the overall sales register is finalized, one must verify that GST rates applied on all invoices comply strictly with the rates notified in relevant notifications, as applicable for the year. Inconsistent or incorrect application of rates-for example, a 12% rate after 22^nd September 2025 must be immediately flagged as incorrect, as such rate is now abolished (except for 3/ 4 goods)

Exports and Deemed Exports

For goods exported, ensure that the shipping bill/bill of lading and corresponding export invoice are properly maintained and available on record for all transactions. Additionally, verify that all exports have been shipped within three months from the date of the export invoice. Equally important, one must ensure the export proceeds (for goods and services) are realized within 1 year, as required under Rule 96A of the CGST Rules. If inward receipt is pending beyond one year for any export, obtain RBI approval to legitimize the extended period. Failure to export goods within 3 months of export invoice or non - receipt of export proceeds within 1 year requires taxpayer to pay the due tax on the said transaction to the Government along with interest (This condition is specified in LUT as well). For deemed exports, these transactions are non-physical exports that still qualify for benefits. Hence, cross-check all documentation supporting these sales.

SEZ Transactions

As a supplier, supplies made to SEZ units or developers must be duly endorsed by the Proper Officer to establish that they are used for 'authorized operations', in accordance with Section 16(1)(b) of the IGST Act. Failure to maintain such endorsements may result in the disallowance of zero-rated supply benefits for supplies made to SEZ customers. Ironically, the endorsement is required to be obtained from the Proper Officer with the assistance of the SEZ customer.

Exemptions availed/ non-GST transactions

If you have made supplies which you believe are eligible for exemption, please ensure the claim of exemption is well documented and recorded. This is because the onus of proof of correct claim of any exemption is that of the taxpayer. We all know, the department loves to challenge exemptions, don't they?

Also, reporting under non-GST supply field must be restricted to only those transactions which are out of the purview of GST, which must also be well documented. For Example, the value of sale of petrol/ HSD should be reconciled with values reported in VAT returns, if applicable for that state.

Debit Notes and Credit Notes

Debit notes must be issued immediately when additional recoverability is determined, as per Time of supply provisions. There is no outer limitation prescribed under Section 34(3) of CGST Act for issuing debit notes against a particular tax invoice. On the other hand, credit notes in relation to invoices issued during a particular financial year must be issued before October of the next year, as provided under Section 34(2) of the CGST Act. Proviso to Section 34(2) of the CGST Act, now requires mandatory reversal of credit by recipient for supplier to be eligible for reduction of liability. Whether IMS will help or complicate this, only time will tell.

Can the option of financial credits be explored by suppliers, especially light of Circular No. 251/08/2025-GST dated 12.09.2025? How prepared are you to respond if questioned on timing and validity of credit/debit notes is raised by the Department?

Advances

One must compare opening and closing advance balances at year end with monthly returns to detect unreported advances or mismatches. Further, if tax is not paid on any advance, then document reasons for the same: deposits, or towards future supply of goods? Interest exposure remains on advances received for services, but tax not paid and subsequent discharge of entire liability along with issuance of the tax invoice.

Accruals and Provisions

Make sure your accruals/ provisions in accordance with accounting standards where GST is not applicable are identified during finalization, especially for outward supply ledgers. Such exercise reduces ambiguity and makes departmental explanations easier.

Miscellaneous/ Other Income

Any income from scrap sales, recoveries, exchange, buyback or incidental supplies also needs GST verification viz-a-viz Section 7 (Scope of supply). Many a times minor income items are easily overlooked which are compliance inquiries, especially during Department audits.

Sale of Fixed Assets

If fixed assets on which ITC was availed are sold within five years of purchase, proportionate ITC reversal (based on remaining useful life) is required under Section 18(6) of the CGST Act read with Rule 44 of CGST Rules, where GST on the sale value is lower than the proportionate credit required to be reversed. Many a times, taxpayer are under wrong impression that if any asset is sold at a loss, then GST is not applicable. However, such misconception should be clarified as such margin scheme is only available for sale of used motor vehicles with certain conditions attached to such margin scheme (Notification 8/2018 - C T (R), dated 25.01.2018, as updated).

E-Commerce Sales Reconciliation

Taxpayers must reconcile sales data recorded by their business with sales reported by e-commerce operators (ECO) under Section 52 CGST Act. The ECO deducts TCS and reports outward supplies, creating scope for mismatches. Year-end reconciliations minimize discrepancies that might otherwise trigger notices.

E-Invoice Reconciliation

After tons of ITC mismatch notices and with ITC provisions relatively settled now, E-invoicing seems to be the next area of focus for Department. Hence, it important to ensure all B2B, B2G, and zero-rated supply invoices (along with their respective Credit and Debit notes) requiring IRN have been generated, as provided under Rule 48(4) of the CGST Rules. If taxpayer's Annual turnover is bordering around INR 5 crore, ensure E-invoice applicability is validated every year. Missing IRNs can render invoices non-compliant and may complicate ITC claims for their recipients.

E-Way Bill

E-way bill verification/reconciliation at year-end is a process more directed towards identifying system lacunae/gaps, if any. For Year-end reviews, once must verify that E-way bills are generated for all shipments involving movement of goods, as per Rule 138 of the CGST Rules. For services involving movement of goods, proper documentation justifying exemptions or correct EWB generation is needed because the value of services as reported in GST returns and value of goods reported in EWB portal will not be in sync.

Claim of Eligible ITC in a timely manner

Monthly ITC reconciliations have become more streamlined as Section 16(2)(aa) of the CGST Act now mandates that ITC can be claimed only when it appears in Form GSTR-2B. This process is further strengthened with the introduction of the IMS. The claim of eligible nature of ITC still rests on the shoulders of the taxpayer. Further, reconciliation of ITC in books with Form GSTR 2B/ IMS will provide the following sets of data at the year-end:

ITC available in books and Form GSTR 2B, claimed in Form GSTR 3B: Re-check the eligibility of such ITC as under:

• Eligibility viz-a-viz, Section 16(1) - business purpose, Section 17(2) - exempt/ non-exempt outward supply related, Section 17(5) - blocked credit
• Vendors have filed their Form GSTR 3B for which ITC is claimed (Rule 37A of CGST Rule)
• Vendors have been paid within 180 days of the invoice date (Rule 37 of CGST Rule)

If any reversal is required under any of the above provisions, the same must be done immediately to minimize interest implications. Such reversal details which are done in the next year are specifically required for reporting in Form GSTR 9 (Annual return) as well.

Also, reclaim of ITC after compliance with Rule 37/ 37A of CGST Rules must be recorded appropriately in books and monthly returns, to ensure that such reclaim does not result in excess claim of ITC.

• ITC available in books but not available in Form GSTR 2B: For such delay from vendor side necessary communication should be made especially at year end. This is because if such ITC is not uploaded till next year's October, then, as a recipient such ITC is lost forever.
• ITC available in Form GSTR 2B but not available in books: For internal delay in accounting, ensure all available and eligible ITC in GSTR 2B, which is not claimed as of March, is claimed in next FY within time limit of Section 16(4) of the CGST Act. Such claim details are specifically required for reporting in Form GSTR 9 (Annual return) as well.

On a serious note, "supplier-KYC" has gained equal importance in recent times ensuring the suppliers are genuine and religiously follow GST compliances. This is because no business wants to delay claiming credits as it impacts cashflows.

Import of goods related ITC

IGST paid on imports is eligible for ITC claim, excluding customs duty and interest, under Section 16 of the CGST Act. It is essential to maintain all Bills of Entry (BoE) in the records, as Rule 36 of the CGST Rules specifies that ITC can be claimed on the basis of these BoEs.

ISD Credits

Eligible credits under Rule 39 should be reconciled with the ISD invoices issued and correctly claimed in the returns. For documentation, the ISD invoice along with supporting invoices must be maintained at each branch claiming the ISD credits (applicable from 01.04.2025). While closing the annual books, this documentation requirement should be kept in mind to ensure the responsible teams are aware of and comply with the legal obligations.

Annual ITC Reversal Ratio

In case, taxpayer has exempt supplies or supplies at concessional rate with conditions which requires reversal of directly related ITC and proportionate common ITC, then the annual reversal under Rule 42/ 43 should be done latest by GSTR 3B of September of next year.

Accounting Reconciliation for ITC Claimed

While finalizing the books of accounts, ITC claimed Form GSTR 3B must be reconciled with accounting entries in books of accounts ensuring electronic credit ledger on the GST portal and books reflect the same picture.

RCM tagging/ identification

Identify RCM applicability in transactions using trial balance accounts and ledger headings. Sections 9(3) and 9(4) of the CGST Act specify notified supplies subject to RCM. For clarity, segregate RCM-related expenses, such as freight (separating RCM and Forward Charge Mechanism) by maintaining separate sub-ledgers, and similarly under 'legal and professional expenses' head, maintain 'legal services/fees (RCM liable)' and 'other professional services' to simplify identification. This practice aids both taxpayers and their consultants during annual reconciliations and department audits as well.

From October 2024, renting of immovable property from unregistered vendors is liable to RCM if the lessee is a registered taxpayer. Accordingly, rental expenses should be reviewed, and any liability discharged, noting that ITC is claimable based on self-invoices for tax paid under RCM from unregistered suppliers.

Similarly, for import of services, check foreign outward remittance details for potential IGST-RCM liability that may have been missed during the year. One common expense that is generally missed out by exporters is the bank charges deducted by foreign banks when remitting the funds.

RCM credit assessment

Only eligible credits on payments of tax under RCM should be claimed and simultaneously one must also ensure that credits claimed does not exceed RCM liability discharged, in any case. One must review common place errors of inadvertent claim of ineligible ITC such as credit claimed for tax paid under RCM for renting of motor vehicles (less than 13-seater vehicles), except in specifically allowed cases.

Tax comparison report

The Tax Comparison Report is one of the most valuable tools available on the GST portal. It compares various parameters between details reported by suppliers, taxpayers themselves and ICEGATE. Before finalizing the books of accounts, state-wise reports should be reviewed to identify and resolve any discrepancies within the prescribed time limits.

State-wise Trial Balance

The GST law does not specifically require maintaining a state-level trial balance; however, it is considered a good practice. This is because during departmental audits, officials often request it in the absence of state-level audited financials. If your system is equipped to generate state-level trial balances, it will prove useful not only during Department audits but also for annual reconciliation to verify RCM and ITC-related compliances. On the other hand, if state-level trial balance is not possible, one may even consider having state-wise details of expenses, as reported in audited financials as that can be the second-best alternative to state-level trial balances.

HSN Code and GST Rate Verification

It is important to revalidate HSN codes and GST rates at least once per year against updated schedules and notifications. Misclassified goods/services or wrong rates after 3/5 years have the potential to cause major business disruption.

TDS/ TCS credit

Annually, verify TDS (Government/PSUs) and TCS (E-commerce operators) credits uploaded on the GST portal under Sections 51 and 52, respectively, which are claimable by the taxpayer. While these credits do not lapse, regular claiming ensures efficient utilization of cash flows.

Job Work Compliance

All goods sent for job work should be reviewed annually to ensure compliance with return timelines-one year for inputs and three years for capital goods-under Section 143 of the CGST Act. Form ITC-04 must be filed half-yearly or annually, as applicable.