Define the three populations before comparing them
Operating revenue in the financial statements, outward supplies under GST and third-party tax information measure different things. Compare the same PAN, GSTINs and reporting period, and use transaction-level evidence to explain the differences. A variance alone does not establish suppressed sales or guarantee that a notice will be issued.
| Population | What to compare |
|---|---|
| Financial statements | Use revenue from operations and identify separately amounts in other income, balance-sheet accounts and prior-period adjustments. Apply the relevant accounting framework, including Ind AS 115 where applicable. |
| GST | Reconcile outward-supply values in GSTR-1, the GSTR-3B liability and annual reporting where applicable. Consider taxable, zero-rated and exempt supplies and avoid duplicating advances later adjusted against invoices. GSTR-9C is a reconciliation statement where required. |
| Direct tax information | For these example years, Form 26AS shows TDS and TCS data; AIS may contain other information as well, including a GST turnover information category. TIS is an aggregation of information within AIS. Do not add AIS and Form 26AS totals together or assume the entries represent all revenue. Check the statements and return applicable to the year. |
Bridge the main differences
| Difference | How to handle it | Records to retain |
|---|---|---|
| Branch transfers | A qualifying supply between distinct persons under section 25 and Schedule I can be reportable even without consideration. A transfer inside one legal entity is not external book revenue. Check the supply facts, GSTINs, valuation and applicable tax. | GST invoices, e-way bills where applicable, branch ledgers and Schedule I reconciliation. |
| Capital assets and scrap | Sale of used machinery may be a GST supply even where book revenue excludes the gross proceeds and the accounts show a disposal gain or loss. Determine the tax treatment by asset and applicable rules, including section 18(6) where relevant. Ordinary scrap sales can already be in operating revenue. | For example, trace a ₹45 lakh machine sale to its invoice, asset register and book and tax disposal workings. |
| Service advances and retention | A service advance can trigger GST on receipt under section 13, and a contractual payment can attract TDS before accounting revenue. A 10% advance of ₹2 crore implies a ₹20 crore base. For goods, Notification 66/2017–Central Tax generally applies invoice-based timing to covered registered suppliers of goods outside the composition levy. Determine the treatment of retention from the payment, credit and entitlement facts. | Contracts, receipt vouchers, bank receipts, TDS records, milestone and contract-liability schedules. |
| Exchange rates | For GST valuation use Rule 34: the customs-notified rate for goods and the rate determined under generally accepted accounting principles for services, with reference to the applicable time of supply. Compare with the accounting rate at the transaction date. | Invoice, notified rates and dates, goods or services classification and FX ledger. For US$100,000, ₹82.50 versus ₹83.20 gives ₹82.50 lakh versus ₹83.20 lakh, a ₹70,000 gap. |
| Commercial credit notes | Document the book treatment and the GST valuation conditions for the period. A financial credit note without a GST value adjustment can leave GSTR-1 at a higher value than book revenue. | Credit notes, invoice links, scheme terms and the applicable GSTR-9C Table 5 line: distinguish trade discounts (5F) from credit notes not admissible under section 34 (5J), with no double counting. |
| GST included in payer reporting | A ₹10 lakh invoice plus 18% GST totals ₹11.80 lakh. If a payer reports that gross amount in a TDS statement, identify the ₹1.80 lakh difference and check whether correction is required. CBDT Circular 23/2017 addresses separately indicated GST on services in its scope; goods have separate rules, such as the section 194Q guidance. | Contract, invoice and payer TDS ledger; request a correction where warranted. |
Use signed adjustments rather than a universal formula. For the GST bridge, start with books or GST and specify the direction of each adjustment: branch supplies, disposals, advances net of invoice adjustments, book accruals, FX and credit notes. For the AIS or 26AS bridge, check opening and closing unbilled amounts, actual payer credits or payments, entries outside turnover and sales absent from the statement. A prior-year book sale billed and first reported this year may increase this year’s payer-data bridge. An amount already included in both bases needs no adjustment.
Worked examples
1. EPC business: FY 2023–24
On the assumed figures, the GST base exceeds book turnover by ₹17.40 crore. Reconcile as follows (₹ crore). No unverified assessment outcome is assumed.
| From GSTR-1 to book operating revenue | ₹ crore |
|---|---|
| Starting GST outward-supply value | 102.40 |
| Distinct-person internal transfers | −12.00 |
| Used equipment disposal proceeds excluded from operating revenue | −3.50 |
| Service advances for work not yet recognised as book revenue | −4.00 |
| Current book revenue for which the applicable GST time of supply has not yet arisen, on the stated facts | +2.10 |
| Book operating revenue | 85.00 |
| From book operating revenue to the reconciled payer dataset | ₹ crore |
|---|---|
| Book operating revenue | 85.00 |
| Service advances included in the payer dataset | +4.00 |
| GST included in amounts reported by payers, subject to checking whether their reporting was correct | +5.40 |
| Current unbilled revenue not yet in the payer data | −2.10 |
| Export sales not present in this dataset | −1.10 |
| Reconciled payer-reported amounts | 91.20 |
The payer dataset is ₹6.20 crore above books. For unbilled work, independently test the time of supply and invoice deadlines; next-year certification does not automatically defer GST.
2. Goods exported in March 2024
Assume the relevant customs-notified rate for GST at the applicable time of supply was ₹82.20 per US dollar on 26 March and the transaction-date rate used under Ind AS 21 was ₹83.40 on 29 March. US$200,000 gives ₹164.40 lakh versus ₹166.80 lakh, a difference of ₹2.40 lakh. These are illustrative rates; verify actual rate notifications and transaction and time-of-supply dates. Shipping and bank realisation evidence serve different purposes.
3. Financial credit notes in FY 2023–24
On ₹40 crore of distributor sales, ₹1.50 crore of commercial credit notes leaves ₹38.50 crore in books where the accounting policy requires net presentation. If the notes do not meet the conditions to reduce GST value for the period, GST outward value remains ₹40 crore. Reconcile the ₹1.50 crore through the applicable Table 5 adjustment; retain the scheme, notes and invoice evidence.
Evidence to retain for audit or a notice
If a query shows ₹42 crore in books, ₹54 crore in GSTR-1 and ₹48 crore in AIS, the GST-to-book and AIS-to-book differences are ₹12 crore and ₹6 crore, respectively. Build separate schedules, trace each figure to returns or statements and explain every adjustment by reference to ledger and supporting documents. Respond under the procedure and deadline stated in the notice. Do not assume a variance is taxable under a particular provision or rely on an unverified case citation.
- Download returns and information statements for the correct periods, including amendments; reconcile return values and liability separately.
- Use a transaction identifier to tie ledgers, tax invoices, GSTINs and payer statements. Separate corrections and timing differences.
- Use the applicable GSTR-9C and Form 3CD disclosures without treating them as substitutes for the reconciliation or correction of period returns. Keep the workpapers.
Frequently asked questions
1. Does higher GST turnover automatically lead to an income-tax addition?
No. Analyse the different reporting bases, record the evidence and respond to any actual notice.
2. Is Form 26AS a complete turnover register?
No. It reports tax information by source. Reconcile the reported amounts with contracts, bank records and books.
3. What if a payer uses the wrong PAN or reports the wrong amount?
Request the appropriate payer correction, give AIS feedback where available, and retain the documents supporting the filed amounts. AIS feedback does not by itself amend a deductor’s statement.
4. What if GSTR-1 and GSTR-3B differ?
Compare outward tax liabilities, not just turnover. Rule 88C may result in a DRC-01B intimation where its conditions are met. Correct under the applicable return or response procedure; GSTR-9 does not amend filed returns.
5. Are pure agent amounts always outside turnover?
Rule 33 excludes the qualifying expenditure from GST value only if all its conditions are met. Review accounting principal-versus-agent presentation and income-tax treatment separately; lack of markup alone does not settle either.
6. What does Form 3CD clause 40 contribute?
It reports turnover and specified ratios when applicable. Keep a separate, evidenced reconciliation; clause 40 is not an independent GST-to-AIS bridge.
Sources
- CBIC CGST Act, including sections 13, 15, 18 and 25 and Schedule I
- CGST Rules: valuation, pure agent and exchange rates
- Notification 66/2017–Central Tax: time of supply for covered goods
- GST Portal: GSTR-9C Table 5 instructions
- GST Council materials: Rule 88C and DRC-01B
- Income Tax Department: AIS, TIS and Form 26AS
- CBDT Circular 23/2017: separately indicated GST on services
- CBDT Circular 13/2021: section 194Q guidance
- MCA Ind AS 115: revenue, contract liabilities and principal versus agent