Introduction

Annual Return in the GST regime has been a critical challenge for any business. The unique features of the formats creatively blended with technology have never been prescribed in any of
the existing indirect tax legislations. Section 44 deals with the filing of Annual Returns in GST law. Every registered person, with certain exceptions, shall furnish an annual return, including a self-certified reconciliation statement, reconciling the value of supplies declared in return furnished for the financial year with the audited annual financial report for every financial year electronically.

The Commissioner has been delegated the power to exempt any class of registered persons from filing an annual return. Section 35(5) of the GST law, which deals with an audit by a chartered accountant or a cost accountant and is linked with filing an annual certified reconciliation statement alongside the Annual Return, has been long withdrawn.
Therefore w.e.f. 01.08.2021, i.e., from FY 2020-21, Section 44 comprehensively deals with matters related to Annual returns.

Turnover Limit for Filing Annual Return

As per Rule 80 of the GST law, Annual Returns shall be furnished in form GSTR 9 for normal taxpayers, GSTR 9A for taxpayers under the composition scheme, and GSTR 9B for Ecommerce operators. Further, the rule prescribes GSTR 9C for filing self-certified Annual Reconciliation Statement. Before 01.08.2021 (i.e., up to FY 2019-20), GSTR 9C was required to be certified by a Chartered Accountant or the Cost Accountant. Further, up to FY 2019-20, a Chartered Accountant or a Cost Accountant was required to audit the accounts under Section 35(5) and certify the form
GSTR 9C, provided that the turnover exceeded the prescribed limit of Rs. 2 crores.

The turnover threshold limits have been prescribed separately for GSTR 9 and GSTR 9C. The threshold for GSTR 9 is delegated to the Commissioner, whereas the threshold for GSTR 9C is specified in Rule 80. Notification No. 10/2022–Central Tax dated 05.07.2022 exempts the registered persons having a turnover of up to Rs. 2 crores from the filing of Annual Return, i.e.,
GSTR 9. The threshold exemption limit for GSTR 9C, as per Rule 80, is Rs. 5 crores.

To summarise, registered persons with an annual aggregate turnover above Rs. 2 crores but below Rs. 5 crores shall file GSTR 9 only, and a registered person with an aggregate turnover of
more than Rs. 5 crores shall have to file both GSTR 9 and GSTR 9C. Registered persons paying tax under the composition scheme, i.e., under Section 10, are fully exempted from filing GSTR 9A as their turnover is always below Rs. 2 crores limit. However, they can file the return voluntarily. The time limit for both GSTR 9 and 9C is 31st December, following the end of the financial year.

Changes in Annual Return for FY 2021-22

While there are no significant changes on the technological front, annual returns cannot be filed unless monthly returns GSTR 1 and GSTR 3B have been filed. However, offline utilities are
available for uploading the data in the portal. The data in Annual Return is populated from either GSTR 1 or GSTR 3B. Annual return forms have the flexibility of reporting the outward supplies not reported in monthly returns by overwriting the auto-populated figures. It is to be noted that all the transactions for a given year will have to be reported in the annual returns. Any
resulting tax is to be paid by filing DRC 03 without an ITC benefit for the recipient. ITC, which is not claimed in monthly returns, cannot be availed in Annual Returns. There is no provision
to report such ITC as the ITC availed is auto-populated from GSTR 3B.

During the first year of the launch of GST, i.e., for FY 2017-18, every registered person had to overcome significant challenges, some of which are stated below:

Challenge in maintaining the accuracy of the data for reporting in Annual returns. This challenge is mainly because the same data gets reflected across several sources. For example, the sales data for any given period can be extracted from financial accounts, income tax returns, monthly returns, and books of accounts. Therefore, in most cases, the data in all these databases may not match exactly, and this becomes a big challenge for every registered person to reconcile this data.
Businesses having places of business in multiple states faced the challenge of preparing individual / standalone accounts for each such state. Before GST, one could sail with preparing consolidated statements; however, such businesses must compile individual reports for each state to comply with GST provisions. This compilation is challenging for most filers not conversant with such preparation practice. In addition, their accounting systems were not structured for such preparation, and neither the staff had the necessary expertise.
The businesses registered in GST and not required to follow any accounting standard mandatorily had to address the challenge of differential treatment to the same transaction originating in several databases such as financial accounts, income tax, etc. Since data reported in Annual returns had to be matched with figures in these databases, any difference arising on such differential treatments became a big challenge in filing the annual returns.
Another challenge was differences arising due to periodical changes. Since monthly returns filed cannot be revised in GST, any changes to the previous year shall have to be reported in the next financial year. As a result, Businesses faced a considerable challenge of figures of the last year reflecting in the current year and figures of the current year reflecting in the next financial year and identifying them and reporting them in Annual Returns. Many businesses (with some exceptions) never faced these types of reconciliations before the GST regime.

These are some of the critical problems, amongst others, that businesses and policymakers found themselves unaware of after the implementation of the GST law. It became almost impossible for any business to file the Annual Returns in the prescribed format. Against this precarious situation, the original formats of Forms GSTR 9 and 9C were replaced with new formats beginning with the first year of GST, i.e., FY 2017-18. The revised forms brought more flexibility in reporting the data, eliminated confusion on specific interpretational issues arising from improper wordings, and suspended certain clauses/tables that were impossible for trade to extract and report.

Since then, the format has remained the same, except that every year significant changes are being made clause by clause/table by table in the said forms. These changes are also significantly challenging to keep track of and comply with as they are notified a few weeks before the due date of filing annual returns without leaving sufficient time for businesses to restructure their reporting systems during the financial year.

For the FY 2022, Notification 14/2022 dated 05.07.2022 was issued, notifying certain vital changes in the Annual Return forms GSTR 9 and 9C. These changes are essentially a continuation of reliefs granted previously or a withdrawal of such reliefs. Some of these changes include:

Credit and Debit notes shall henceforth be reported separately. Up to FY 2020-21, it was sufficient to report them by offsetting the supplies.
All amendments shall henceforth be reported separately. Up to FY 2020-21, it was sufficient to report them by offsetting the supplies.
Non-GST supplies shall have to be reported separately from exempt/nil-rated supplies. However, up to FY 2020-21, it was sufficient to report them along with exempt/nil-rated supplies.
Relief granted earlier on reporting ITC on inputs and input services on a combined basis has been continued. Accordingly, only ITC on capital goods shall be reported separately.
The relief granted previously on reporting all the ITC reversals under the last row has been continued for FY 2021-22
The auto-population of GSTR 2A in GSTR 9 has not been notified. However, up to FY 2020- 21, the GSTR 2A form generated before the filing of GSTR 9 was auto-populated in GSTR 9.
Relief on reporting HSN-wise supply of outward supplies has been withdrawn, and a registered person is required to report them. However, relief on reporting HSN-wise supply of inward supplies has continued.
The reliefs granted in GSTR 9C have continued for FY 2021-22, except for minor withdrawals.

Conclusion

Despite these measures, the challenge of filing Annual returns continues to remain, although to a lesser degree than earlier. It is alarming to note that the policymakers in the year 2022 have withdrawn certain reliefs available until the previous year, even though most businesses have no significant upgrades in business processes or reporting systems. Moreover, most of them suffer from post-covid business challenges and could hardly upgrade themselves by investing in adequate costs and a sufficiently trained workforce.

One of the critical requirements for the smooth filing of Annual returns is a complete overhaul of processes and reporting systems centered around compliances under various laws, more
importantly, the GST law, coupled with a trained workforce. The sophisticated information sought by the Annual returns is possible only if sophistication is achieved in business processes and reporting systems. Mere prescription of the format of annual returns and making it mandatory for businesses to file them will only result in more defaults and filing of incorrect and incomplete information.

One cannot deny the underlying objective and purpose of annual return and its positive impact. Still, a tax policy overlooking the strengths and weaknesses of business reporting systems will only create more resistance and eventual failures. On the other hand, a holistic approach to address an entire eco-system and not merely taxation systems will produce an adequate opportunity for the businesses to build the capacity and eventually meet with compliances such as Annual Returns. Until then, the suspension could be a prescription but not the lasting one.