Introduction

If you are running a small clinic, pharmacy, or medical supply business, you probably pay GST every month and file income tax once a year. 

But here’s the catch: GST and income tax are more connected than you think.

Many Healthcare MSMEs don’t realise that mismatched GST and income tax data can lead to notices, penalties, or even loan rejections.

Even if you are under Presumptive Taxation, like Section 44ADA, your GST returns must match your declared income. 

Why? Because tax departments and lenders compare both to check for red flags.

This article will help you:

• Understand how GST and income tax are linked
• Avoid mistakes during return filing
• Learn from real-life MSME examples
• Protect your CIBIL score and loan eligibility

1. How are GST returns linked to income tax filings for MSMEs in India?

Many Healthcare MSMEs don’t know this, but your GST returns and income tax returns are cross-checked by the government.

Let’s break it down.

If you run a small clinic, lab, or medical supply business, you probably file GSTR-1 and GSTR-3B every month or quarter. 

These forms show your sales and GST collected.

Then, once a year, you file your income tax return (ITR) — either ITR-3 or ITR-4 if you’re under Presumptive Taxation like Section 44ADA.

Now here’s the catch:

Your total sales reported in GST must match your gross receipts in your income tax return.

If there’s a big difference, it can raise red flags.

For example:

If your GSTR-3B shows ₹40 lakhs in sales for the year, but your ITR shows only ₹25 lakhs, the tax department may ask: “Why the mismatch?”

They assume you’re hiding income or under-reporting profit to pay less tax.

This can lead to:

• Scrutiny or notice from the Income Tax Department
• Issues when applying for loans (banks check consistency)
• Penalties or blocked GST refunds

So always make sure that your GST turnover = or is at least close to the turnover shown in your income tax return.

Even if you’re under 44ADA or 44AD and pay tax on a fixed percentage, your declared gross receipts must be honest and match your GST reports.

In short, file both returns carefully, cross-check your numbers, and never file them in isolation. 

They are directly linked, and mismatches can be costly.

2. What happens if your GST turnover doesn’t match your income tax return in 2025?

If your GST turnover and income tax return don’t match, it can create serious problems for your Healthcare MSME. 

Many small clinics, pharmacies, or distributors don’t realize how closely these numbers are tracked now.

Here’s what can go wrong:

1. You may get a tax notice

The Income Tax Department and GST authorities share data. 

If your GSTR-1 or GSTR-3B shows ₹50 lakhs in sales, but your ITR shows only ₹30 lakhs, the system can flag it.

You may get a notice or inquiry asking for clarification.

2. GST refunds can get delayed or blocked

If you apply for a GST refund and your returns look mismatched or suspicious, your refund may be withheld. This can affect your working capital badly.

3. You may face penalties

Mismatch is treated as non-compliance. 

The tax officer can add interest or penalties on the difference. In some cases, this could even lead to further audits.

4. Loan applications can get rejected

When you apply for a business loan, banks compare your GST filings and income tax filings. 

If there’s a mismatch, they may lose trust or ask for more documents.

5. It affects your business credit score

Inconsistent data may lead to a lower CIBIL score or a weak credit profile.

This makes it harder to get supplier credit or working capital support.

In simple words:

If you are filing GSTR returns that say one number and income tax that says another, the tax department assumes something is wrong.

Even if it’s a mistake or confusion, you may have to spend time replying to notices, proving your numbers, and facing delays in refunds or loan approvals.

So it’s better to stay safe and match both sets of returns every year.

3. Why do many small business owners unknowingly underreport or overreport sales across GST and ITR?

Many small business owners, especially in the healthcare MSME sector, often make reporting mistakes while filing GST and income tax. 

This happens not because they want to cheat the system, but mostly because of confusion or lack of awareness.

Let’s break down the common reasons:

1. Different periods for GST and ITR
   
   Some people follow April to March for income tax, but file GST returns based on actual invoices without matching dates. For example, a sale in March might be shown in the GST return for April due to late billing. But in ITR, it’s counted for the last financial year. This mismatch creates a problem.
2. Forgetting to include unregistered sales
   
   If you make cash sales or sales to unregistered buyers like walk-in patients at a clinic, you might skip reporting them in the ITR. But in GST, even these are often included in turnover. That leads to underreporting in income tax.
3. Manual vs digital billing
   
   Some clinics or pharmacies use billing software for GST but prepare tax returns manually. They may miss out on reconciling both sets of data. The sales data in Tally or software is higher, but the accountant files a lower number in the ITR.
4. Not reconciling credit notes or returns
   
   If you issue a refund, replacement, or credit note in GST, it reduces taxable sales. But if you forget to adjust this in ITR, the numbers won’t match. Similarly, many forget to include debit notes or advance receipts in both systems.
5. Different accountants or consultants
   
   It’s common for MSMEs to hire one person for GST filing and another for income tax. If they don’t talk to each other or review data side by side, it leads to differences in reported turnover.
6. Lack of awareness
   
   Many people think GST and income tax are separate. They don’t realize that departments now share data digitally. So they don’t double-check before filing.

To avoid these problems, small businesses must match the total annual sales declared in GST returns with what is shown in income tax returns. 

Even if there’s a difference, it should be explained clearly in the books.

4. Which MSMEs are most vulnerable to GST vs income tax mismatches?

Not all businesses face the same level of risk when it comes to GST and income tax mismatches. 

But some MSMEs are more likely to make errors, usually because their sales are a mix of digital and manual, or because they don’t maintain proper records for every transaction.

Let’s look at a few real examples:

1. Pharmacies with both digital and cash sales

Many small pharmacies sell medicines to walk-in customers using cash or UPI. 

These sales often get recorded only in the POS system but not fully declared in GST. 

Some business owners forget to include these when filing their income tax. 

So their ITR shows less turnover compared to GST filings or vice versa. This creates a mismatch.

2. Clinics that sell consumables along with services

A dental or skin clinic may earn from consultations, but also sell products like dental kits, creams, or supplements. 

Often, service income is shown in income tax, but product sales are included only in GST returns. 

If these are not tallied together properly, the tax departments may flag the file for a mismatch.

3. Lab suppliers who issue partial or delayed invoices

Many suppliers in Tier 2/3 cities give materials to labs or clinics, but delay billing. 

They may show the sale in GST returns after a few weeks or months. 

But if the income is recorded in the books earlier, it will reflect differently in the ITR. 

If this pattern continues across quarters, it builds up a significant difference between the two filings.

4. Traders or distributors working on partial cash and bank payments

Some medical distributors take a part of the payment in cash and the rest in a bank transfer. 

This makes it harder to track full sales in one system. If

 GST invoices show the full amount, but the income tax records only show what came through the bank, which leads to trouble.

5. Diagnostic labs offering discounts and free services

Labs may offer promotional discounts, partner with doctors, or give subsidized services. 

These adjustments are shown in credit notes in GST, but many labs forget to reflect these correctly in income tax. 

This again causes inconsistencies.

Bottom line:

Any small healthcare business that has more than one income stream, mixes digital and offline billing, or doesn’t use proper accounting tools regularly is vulnerable to mismatch problems. 

It’s important to use simple tools or consult experts to make sure your GST and income tax numbers match at the end of the year.

5. What tools can help reconcile your GST data with income tax reporting accurately?

Reconciling GST and income tax numbers doesn’t have to be complicated. 

Today, there are simple tools that can help small businesses and Healthcare MSMEs make sure their sales data matches in both systems.

Let’s look at a few popular options that work well:

TallyPrime

Tally is widely used by small businesses in India. 

TallyPrime helps you manage both GST and income tax data in one place. 

If you enter every sale and purchase correctly, it generates GST return reports and also gives profit and loss details for income tax filing. 

The best part is, it flags mismatches if something doesn’t line up.

ClearTax GST

This is a cloud-based software designed specifically for GST filing and reconciliation. 

It automatically pulls your data from the GST portal and compares it with your accounting books. 

If something is missing, like an invoice not filed or the wrong tax rate used, it alerts you. 

It also helps match sales reported in GSTR-1 with income tax turnover.

Zoho Books

Zoho is a great tool for small clinics, pharmacies, and suppliers. 

It’s easy to use and has auto-GST compliance. You can link your bank account, generate GST invoices, and track payments. 

At the end of the year, you can export your turnover report and match it directly with your ITR. 

Zoho also supports multi-user access, so your accountant and staff can work together.

Excel-based Reconciliation Templates

If you’re not ready to use software yet, simple Excel sheets can help too. You can download your GSTR-1 and 3B summaries from the GST portal, and enter your ITR turnover in the same sheet. Then create a column to compare both. These templates help you find missing or mismatched values quickly.

Why use these tools?

Using these tools regularly helps you avoid tax notices, delays in refunds, and penalties. 

It also builds trust with banks and lenders because your financial reports are clean and accurate.

If you’re a small healthcare business that sells both services and products, these tools are very helpful to keep your numbers clean and matching.

6. Should MSMEs declare GST-exempt income in income tax returns too?

Yes, absolutely. Even if some of your income is exempt from GST, you still need to declare it in your income tax return.

Let’s say you run a small diagnostic lab or a clinic. 

Many of the services you provide, like basic medical consultation, X-rays, or blood tests, are exempt from GST under government rules. 

That means you don’t charge GST to your patients. 

But that doesn’t mean this income is invisible.

From an income tax point of view, all your earnings count, whether they are taxable under GST or not. 

The Income Tax Department wants to see your total turnover, including both GST-taxable and GST-exempt services.

If you don’t show exempt income in your ITR, it can cause a mismatch with your actual business activity. 

For example, if your bank statements or UPI records show regular deposits, but your income tax filing only shows partial earnings, you could get a notice.

So, the smart and safe approach is this:

• In your GST return, report your taxable sales and exempt sales separately.
• In your income tax return, add up both to reflect your full income.

This keeps your books clean. It also builds trust with lenders, tax officers, and future investors. 

Many Healthcare MSMEs, especially clinics and small labs, make this mistake by only reporting taxable income. Avoid that.

7. How can MSMEs avoid tax notices caused by mismatches between GST and ITR filings?

This is a very common issue for small businesses. 

Many MSMEs get tax notices simply because their GST returns don’t match what they file in their income tax return. 

But the good news is that this can be avoided with a little care and regular tracking.

Here are a few smart steps you can follow:

1. Reconcile monthly, not yearly

Don’t wait till the end of the year to compare your GST and ITR numbers. 

Do a monthly reconciliation. Match your sales as shown in GSTR-1 and GSTR-3B with what you’ve recorded in your books or software. 

This makes it easier to spot mistakes early.

2. Use the same financial period

Make sure that your GST return and income tax return use the same period for reporting sales. 

Sometimes, a sale made on March 30 is shown in GST for March but in ITR for April. 

This creates a mismatch.

3. Declare total turnover correctly

In your income tax return, declare your full turnover, including both taxable and GST-exempt income. 

This is especially important for Healthcare MSMEs like clinics and labs, where some income may be exempt.

4. File accurate profit

If you are using presumptive taxation under Section 44AD or 44ADA, make sure your declared profit (say 8% or 50%) makes sense in comparison to your total turnover in GST. 

If your GST shows ₹50 lakh turnover and your ITR only shows ₹10 lakh, it raises red flags.

5. Match returns with bank statements

Sometimes, the IT department checks your ITR against your bank deposits or UPI inflows. 

So make sure your income tax filing also reflects the real money you received, even if some of it is exempt or came from offline sales.

6. Use accounting software or Excel tools

Software like TallyPrime, Zoho Books, ClearTax, or even well-designed Excel templates can help match your returns and generate summary reports that keep your records clean.

By following these simple practices, you can stay safe from unnecessary tax notices and scrutiny. 

It also builds your credibility for getting loans and government support in the future.

8. Can GST filings strengthen your MSME’s financial profile for loans and credit?

Absolutely, GST filings can help strengthen your MSME’s financial profile in a big way, especially when you’re applying for loans or credit.