GST reconciliation is software that matches each purchase invoice a company has received against what the supplier reported in its own GST filing, so that the company can claim credit for the GST it paid. This credit is called input tax credit, or ITC. Without the match, the company may lose the credit, or have to pay it back later with interest.
Here is the rule behind it. Under GST, a business pays GST on what it buys and collects GST on what it sells. It pays the government only the difference. Say a business buys raw material for ₹1,00,000 plus ₹18,000 GST, and sells its product for ₹1,50,000 plus ₹27,000 GST. It pays the government ₹27,000 minus ₹18,000, which is ₹9,000. The ₹18,000 it deducted is its input tax credit.
But the credit is allowed only if the supplier has reported that sale to the government. Each supplier reports its sales invoices in a return called GSTR-1. A supplier with a yearly turnover above ₹5 crore files it every month. A smaller supplier may choose to file it every quarter instead. From these returns, the GST portal prepares a statement for each buyer, called GSTR-2B. It lists every invoice that the buyer's suppliers have reported. A buyer may claim credit only for invoices that appear in its GSTR-2B.
Consider a furniture maker in Jodhpur that received 900 purchase invoices in one month, with ₹42 lakh of GST on them. The software downloads its GSTR-2B from the GST portal. It also takes the purchase register, the list of all purchase invoices, from the company's ERP. It matches the two by the supplier's GST number, the invoice number, the date and the amount. 860 invoices match exactly. 25 invoices, carrying ₹1.8 lakh of GST, are missing from GSTR-2B, because those suppliers have not filed yet. 15 invoices appear with a different amount or invoice number.
The company claims credit for the 860 matched invoices. For the 25 missing ones, the software emails each supplier a reminder to file. An employee in the accounts team checks the 15 mismatches with the suppliers, one by one. Some companies also hold back payment to a supplier until its invoice appears in GSTR-2B.
This matching is a kind of reconciliation. It sits beside the invoice audit, which checks each invoice against the purchase order before payment. Small businesses often get a simpler version inside their small business accounting software. Companies that sell in several countries handle GST together with other taxes in indirect tax software. Every company in India that claims input tax credit needs this check every month.