Annual GST returns and audit issues causing taxpayer turmoil

Note: The due date to file annual GST return form GSTR-9 for FY 2018-18 has been further extended to November 30, 2019.

Annual GST returns and audit issues causing taxpayer turmoil

In our series of two articles, we are attempting to shed light on issues in GST annual return and how to deal with those issues to make the journey smoother. It is paramount to furnish correct details in GST Annual Return and Audit Report because incorrect details can lead to tax demands, interests, penalties and the much-dreaded litigation.

In this article, i.e., part 1 of this series, we are dealing with annual GST returns and audit issues causing taxpayer turmoil.

In part 2 of this series, we will cover procedural checklist that will help ensure companies experience smooth and hassle-free GST annual return filing.

In its 31st meeting, the GST Council announced a New Year bonanza by extending the FY 2017-18 GST annual return due date until June 30th, 2019. This “bonanza” only partially benefits taxpayers, however, as there are still many unresolved issues surrounding GST’s audit and annual return process. 

Previously, under the VAT and Service Tax Regime, the annual return process was a mere consolidation of all returns filed during the financial year, but under GST, form GSTR-9 now requires taxpayers to merge figures from all monthly and quarterly returns, and to compute some additional figures as well. 

Taxpayers in India have been tangled up over some of the specific calculations and provisions, and today’s blog highlights major issues in the light of two crucial milestones of the GST journey. 

Financial Year 2017-18 will now be nine months

In form GSTR-9, the annual return form, and GSTR-9C, its reconciliation statement, the term “Financial Year” has been used several times. GST authorities have excluded April ’17 – June ’17 period figures so that FY 2017-18 comprises only nine months (from July ’17 – March ’18). Businesses will have to pay due care to include financial figures correctly while populating information from accounting records into annual returns. 

Annual returns to be filed with information from GSTR-1 returns

Since the inception of GST, GSTR-3B vs. GSTR-1 mismatches have been the primary reason for issuance of departmental notices. The number of mismatches in annual return filings are now likely to increase, as taxpayers are required to file GSTR-9 from information previously filled in GSTR-1 returns. Businesses will have to enforce a robust mechanism for pulling data correctly from GSTR-1 returns, rather than erroneously pulling it from GSTR-3B returns. 

No space for amendments or correction of mistakes

Many businesses had been expecting a column in GSTR-9 where they could amend or correct information already submitted in the monthly quarterly returns. Much to their disappointment, however, no space has been provided for them to make corrections. 

Splitting the total amount of the input tax credit

In Table 6 of GSTR-9, a taxpayer must split up the total amount of their Input Tax Credit (ITC) into inputs, capital goods, and input services. 

Since this bifurcation was not required in GSTR-3B returns, taxpayers will now have to compute the amounts owed from the accounting records. 

HSN wise reporting of inward supplies

Table 18 of the GSTR-9 return requires taxpayers to report the following inward supply details: 

1. HSN Code
2. Unique Quantity Code (UQC)
3. Total Quantity
4. Taxable Value
5. Rate of Tax
6. Central Tax
7. State Tax/UT Tax
8. Integrated Tax
9. Cess

Since only a specified class of taxpayers, ones having an annual turnover of ₹ 1.5 crores and above, must report HSN codes in monthly and quarterly returns, filling this table will be a daunting task.  

Additional liability to be set off only in cash

Any additional liability recommended by the auditor in GSTR-9C can be paid only through electronic cash ledger. For paying the additional liability, taxpayers must fill out form DRC-03 and select “Annual Return” in the drop-down menu.

It is pertinent to note that such liability is a recommendation by the auditor, and the taxpayer enjoys the right to reject or accept the liability fully or partially. 

Calculation of state-wise turnover in GSTR-9C

GSTR-9C reconciliation statements require taxpayers to report turnover separately, pursuant to audited financial statements for each state or union territory. Since companies generally prepare financial statements from a central location, many will now have to setup re-calculations in order to derive state-wise figures from audited accounts. 

Taxpayers must also remember to deduct any turnover between the April’17 – Jun’17 period from the total turnover, making the entire returns filing procedure cumbersome. 

Although there are numerous issues, businesses can ensure a smoother journey during the GST audit phase by adopting a few easy measures.

Read Part 2 of this series to know more about the procedural checklist that will help ensure businesses experience smooth and hassle-free GST annual return filing.

Avalara is an experienced application service provider (ASP) and partner of authorized GST Suvidha Providers (GSPs). To understand how our cloud-based application Avalara India GST can help you with GST compliance automation, contact us through https://www.avalara.com/in/products/gst-returns-filing.