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GST Annual Returns Could Keep Tax Officer At A Bay

Businesses with less than Rs 5 crore annual turnover, comprises of over 90% of taxpayers and any waive of annual return for them would ease the compliance for millions.

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With so many changes and exemptions in GST since its inception, one of the most awaited and talk of the hour is the waiver of filing of annual return by small taxpayers. GST Council in its meeting on September 20 accepted the proposal to exempt taxpayers up to a certain threshold from filing an annual return for the financial year 2017-18 only or for the financial year 2018-19 as well. To recall, an annual return requirement historically under the VAT regime was exempt for businesses with a specified threshold and hence this proposal may be aligned to the pre-GST regime.

To small businesses seeking relief, this may seem as an aid from the ease of compliance perspective as they had not maintained quite a lot of details which were required to be reported in the annual return; essentially owing to the suspension of GSTR-2. The bifurcation of credit into Input, capital input and input service, vendor wise bifurcation of inward supplies under reverse charge, HSN (harmonised system of nomenclature) and rate wise summary of inward supplies and HSN code reporting at the six-digit level are some of the additional requirements troubling the taxpayers. Further, since the forms were issued post-closure of statutory audits for the financial year 2017-18, the taxpayers were facing issues in capturing additional details like with respect to inputs, etc. Bifurcation of short credit availed vis a vis credit appearing in GSTR-2A into ineligible credit and eligible credit but not availed is another challenge as the GST component is booked as a cost in such cases and invoice level rechecking is not practicable. Further, the technical glitches on the portal add more to the agitation as it leads to sheer wastage of time and effort. Hence, for small taxpayers, if finally, the Council gives the nod, it would be a big relief to them.

However, the scrapping of annual filing for any tax taxpayer due to the complexity of data required and technical glitches is not a good sign for a prospective digital economy. When the dates of the return were extended, the government had cited technical glitches as the reason. Instead of making the current picture clear & effective the Government is changing the whole picture which would broadly affect the small taxpayers in future when they would not be able to know the differences in their books of accounts and GST returns. 

This scrapping may also affect the revenue distribution of states to the extent of an unreported ineligible tax credit. As some businesses are ineligible to claim the benefits of input tax credit or ITC, the balance gets accumulated in the IGST pool. Timely apportionment would help improve the indirect tax position of both the Centre and states, scrapping of annual return may also necessitate some spillover changes in the revenue distribution mechanics.

Successful filing of GSTR-9 requires data to be thoroughly reviewed and reconciled, it gives a clearer idea about the tax liability or credit. Understanding the causes of differences between the books of accounts and GST annual return is key to satisfactory compliance. Thousands of line items of data cannot be reconciled without using a smart solution that quickly points out and helps fix gaps. Therefore, businesses must prepare GSTR-9 for fixing the gaps. This will be a hindrance to our respected Prime Minister’s dream of the tax-compliant economy.

Annual return form- GSTR-9 is an annual summary of the supplies made by a registered entity, tax paid on such supplies, input tax credit (ITC) claimed, ineligible credits, demands and refunds, and the HSN on outward and inward supplies. Also, figures with regard to transactions related to the financial year ending March 31, 2018, declared in return of April to March 2019 are to be acknowledged in the annual return.  Further, the taxpayers can rectify through this return any mistake done and hence it shall not be waived off. Taxpayers should gear up to match and reconcile the GST data and financial records correctly to avoid any consequences and this will also ease them in handling the scrutiny notices

GST annual filing forms may be intrinsically loaded with certain technical and interpretational issues, still are expected to go a long way in detecting and tapping bonafide and malafide tax mistakes committed in payment of taxes. Also in a way, filing of annual returns is a mechanism whereby corrections are made on a self-assessment basis and differential taxes are deposited. This act of self-payment would have kept the tax officers at a bay, now with a proposed exemption from annual filings risk of tax evasion would increase to which tax officers would react by undertaking more field visits/ inspections. When our political honchos are oscillating between “to be or not to be”, taxpayers should prepare and file tax returns for their own good rather than fixing their sight on temporary monetary and implied costs involved.

Businesses with less than Rs 5 crore annual turnover, comprises of over 90% of taxpayers and any waive of annual return for them would ease the compliance for millions. This would be a good political move, but in a long term perspective government should not target such temporary measures to push the economy, real issues like unemployment, education and liquidity crunch shall be addressed.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Rajat Mohan

The author is Partner, AMRG & Associates

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