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“Exemption of annual return to Small Taxpayer”.. Good move or not??

  1. With so many changes and exemptions in GST , one of the most awaited is the waiver of filing of annual return by small taxpayers.
  2. Businesses with less than ₹ 5 crore annual turnover ( i.e. small tu , includes nearly 90% of taxpayers.
  3. Any exemption of annual return would be easy for compliance to millions of taxpayers.
  4. GST Council in its meeting on 20th September, 2019 accepted the proposal to exempt taxpayers up to certain threshold from filing an annual return for the FY 2017-18 only or for the FY 2018-19 as well.
  5. A final notification in this regard will be updated soon with further details.
  6. Annual return requirement under the VAT regime was exempt for businesses with a specified threshold and hence this proposal may be aligned to the pre-GST regime.
  7. This may seem as easy compliance.
  8. The reason being small businessmen doesn’t maintain a lot of details which were required to be reported in the annual return.
  9. The bifurcation of credit into Input, capital input and input service is troubling.
  10. In addition to that, Vendor wise bifurcation of inward supplies under RCM (Reverse Charge) , HSN (harmonised system of nomenclature) rate wise summary of inward supplies is complicated.
  11. Plus, HSN code reporting at the six-digit level are troubling for small taxpayers.
  12. Since the return forms were issued after closure of statutory audits for the financial year 2017-18, the taxpayers were facing issues in capturing additional required details.
  13. Bifurcation of short credit availed via credit appearing in GSTR-2A into ineligible credit and eligible credit but not availed is another challenge.
  14. GST component is booked as a part of cost and invoice level rechecking is not practicable in many cases.
  15. Further, the technical problems on the portal leads to wastage of time and effort.
  16. However, the exemption of annual filing for any tax taxpayer due to the complexity of data required and technical problems is not a good sign for a prospective digital economy.
  17. Earlier, When the dates of the return were extended, the government had given reason of technical problems.
  18. Instead of making the current situation better, the Government is changing the whole picture which would mainly affect the small taxpayers in future.
  19. This scrapping may also affect the revenue distribution of states to the extent of an unreported ineligible tax credit.
  20. The reason being Some businesses are ineligible to claim the benefits of input tax credit (ITC) , the balance gets accumulated in IGST.
  21. Timely apportionment would improve indirect tax position of both the Centre and states.
  22. This exemption in annual return may also make some changes in the revenue distribution mechanism.
  23. Successful filing of GSTR-9 requires data to be thoroughly reviewed and reconciled, it gives clearer idea about the tax liability or ITC.
  24. Plus, Understanding the causes of differences between the books of accounts and GST annual return is required for compliance.
  25. Thousands of items of data cannot be reconciled without using a smart solution to fix problems.
  26. Therefore, business must prepare GSTR-9 for fixing the issues.
  27. 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.
  28. Also, figures with regard to transactions related to the financial year ending 31st March, 2018 which are declared in return of April to March 2019 are to be acknowledged in the annual return.
  29. Further, the taxpayers can rectify any mistake done via this annual return and hence it is not advised to be waived off.
  30. Taxpayers should reconcile the GST data and financial records correctly to avoid any consequences and this will also easy for them to handle scrutiny notices.
  31. GST annual filing forms are introduced with certain technical and interpretational issues, still are expected to identify fraudulent tax mistakes.
  32. Filing of annual returns is a mechanism whereby corrections are made on a self-assessment basis and difference in taxes are required to be paid.
  33. Proposed exemption from annual filings will increase risk of tax evasion.
  34. This would require tax officers to do frequent inspections.
  35. It is advised to file voluntary annual return for their own convenience.
  36. This would be a good political move, but in a long term perspective government should not target such temporary measures to solve economy issues.
Author: Niranjan Reddy

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