GSTR-9: The Consequences of Incorrect Filing or Non-Filing

October 23, 2023

Goods and Services Tax (GST) has transformed the way businesses operate in India. It focuses on enhancing transparency, accountability, and compliance. One of the crucial obligations under GST is the GSTR-9 filing. The annual return filing is known as GSTR-9.

This return holds potential significance in maintaining the integrity of the GST system as it is the most important. There are various points and facts to be kept in mind while filing a return.

We will learn about the consequences of not filing GSTR-9 or filing incorrect returns, shedding light on the financial, legal, and reputational ramifications for businesses.

What is GSTR-9?

GSTR-9, short for Goods and Services Tax Return-9, is an annual return under the Goods and Services Tax (GST) system. It is a comprehensive summary of all the GST transactions conducted by a registered taxpayer during a particular financial year.

Significance of GSTR-9:

Comprehensive Reporting: GSTR-9 is a comprehensive summary of all the GST transactions conducted by a registered business during a financial year. It provides a consolidated view of all the data reported in various GST returns (GSTR-1, GSTR-3B, etc.) for the entire financial year.
Reconciliation: It serves as a reconciliation tool. Businesses can use GSTR-9 to cross-verify the data they have reported in their regular GST returns with the annual return. This helps in identifying any discrepancies and correcting them, ensuring accuracy in GSTR-9 filings.

Audit Trail: GSTR-9 provides an audit trail of all the GST-related activities for a financial year. This can be useful for businesses during internal audits, tax audits, or in case of any disputes with tax authorities

Compliance: Filing GSTR-9 is a legal requirement under the GST law. Non-compliance can lead to penalties and legal consequences. Therefore, it is significant for businesses to fulfill this obligation to remain compliant with the GST regime.

Input Tax Credit (ITC) Reconciliation: Businesses can use GSTR-9 to reconcile their input tax credit claimed during the year with the actual purchases and expenses. This ensures that ITC is correctly claimed, minimizing the risk of future tax disputes.

No GSTR-9 Filing: Legal obligations

Registered businesses are legally obligated to accurately report all GST-related transactions for the entire financial year in GSTR-9. This includes details of both outward supplies and inward supplies. Businesses must reconcile the data reported in GSTR-9 with the data reported in their regular GST returns (like GSTR-1 and GSTR-3B) for the same financial year. Any discrepancies should be rectified to ensure that the GST liability and input tax credit (ITC) claimed are accurately accounted for.

Businesses are obligated to maintain records related to GST transactions for a minimum of 72 months (6 years). These records should be readily available for inspection by tax authorities. GSTR-9 should be consistent with the financial statements and books of accounts of the business. This ensures that the financial records and GST records match, promoting financial transparency.

GSTR-9 mandates the disclosure of all GST transactions, including supplies made, supplies received, and any adjustments made during the financial year. By GSTR-9 filing, businesses communicate their correct tax liability to tax authorities. This transparency is crucial for tax administration to assess the tax dues accurately.

GSTR-9 acts as a chronological record of all GST-related actions conducted throughout the fiscal year. Tax authorities have the ability to review this record during audits, which in turn guarantees a transparent process when assessing tax obligations.

Categories of taxpayers required to file GSTR-9:

All categories of ‘Registered’ taxpayers are required to file GSTR-9 except

Casual Taxpayers,
Non-resident Taxable persons,
Input Service Distributors,
E-commerce Operators,
People paying TDS & TCS
Taxpayers opting for a composition scheme.

Role of Taxpayers in GSTR-9 filing:

Taxpayers play a crucial role in GSTR-9 filing. Their responsibilities include the following:

Accurately compile and summarize all GST transactions for the entire financial year in GSTR-9.
Reconcile data reported in GSTR-9 with regular GST returns for the same year. Maintain records related to GST transactions for a minimum of 72 months.
File GSTR-9 within the prescribed due date to avoid penalties.
Verify and communicate correct tax liability to tax authorities.
Reconcile claimed Input Tax Credit (ITC) with actual purchases and expenses.
Review the return for errors and prepare for possible tax audits.
Ensure compliance with all GST laws and regulations.
Seek professional advice if needed for accurate filing.
Maintain transparency in GST reporting and align it with financial statements.

What are the consequences of not filing GSTR-9?

Financial penalties and late fees:

According to the penalty provisions outlined in the GSTR-9 annual return form, taxpayers are required to remit a daily penalty of Rs. 200. This penalty is split into Rs. 100 for State Goods and Services Tax (SGST) and Rs. 100 for Central Goods and Services Tax (CGST). It’s important to note that the total penalty cannot surpass 0.50% of the turnover in a state/UT.

Starting from the financial year 2022-23, there is a change in the penalty structure for taxpayers. For those with a turnover of up to Rs. 5 crores, the penalty is reduced to Rs. 50 per day, with Rs. 25 allocated to SGST and Rs. 25 to CGST. However, if the turnover exceeds Rs. 5 Crore and up to Rs. 20 Crore, the late fee increases to Rs. 100, with Rs. 50 attributed to SGST and Rs. 50 to CGST.

Legal repercussions:

Tax authorities may initiate legal proceedings against non-compliant taxpayers. This can involve sending legal notices, conducting tax audits, and assessing additional tax liabilities. In more severe cases where there is evidence of deliberate tax evasion or fraudulent activities, taxpayers may face criminal charges, fines, and imprisonment.

Ineligibility for certain GST benefits and credits:

Non-compliance with GSTR-9 filing may render taxpayers ineligible for certain GST benefits and credits. This can affect their ability to claim GST refunds, participate in government schemes, or avail themselves of other benefits provided under GST law.

Compliance Issues and Tarnished Business Reputation:

Risks Associated with Failure with GSTR-9 Filing:

Failure with GSTR-9 filing, a critical GST compliance requirement, poses significant risks that can have far-reaching consequences for businesses. When a business fails to file GSTR-9, it can trigger a series of issues, including tax audits and investigations by tax authorities. These audits, often thorough and time-consuming, can disrupt the normal course of business operations.

Additionally, failure with GSTR-9 filing may result in the loss of unclaimed Input Tax Credit (ITC) and the imposition of penalties. These financial repercussions can place a considerable strain on the business’s financial health, potentially jeopardizing its stability.

2. Operational Disruptions Stemming from Audits and Investigations:

When a business doesn’t follow the rules for GSTR-9 filing, it can cause some serious problems. These problems can disrupt the way the business usually runs in different ways. First, it can take up a lot of time and resources to deal with these issues. Second, it can make the people in the business focus on these problems instead of the important things they usually do to run the business smoothly.

Imagine having to find and give a lot of paperwork, answer questions, and deal with the audit process. Having a big pile of extra work that you didn’t plan for can be pretty hard to manage. This extra work can make the business less efficient and productive for a while. So, it’s not just about the money; it can also make running the business more challenging for a while.

3. Financial Strain Resulting from Penalties and Additional Tax Liabilities:

One of the most significant repercussions of non-filing is the financial strain it imposes on a business. Penalties and late fees can accumulate rapidly, compounding the financial burden. In addition to penalties, non-compliance may uncover potential tax liabilities that were previously unnoticed or underestimated.

This sudden revelation of additional tax obligations can further strain the company’s finances, potentially leading to liquidity issues. The ability to meet other financial obligations, such as paying vendors, employees, or servicing loans, may be compromised as a result.

4. Erosion of Trust among Stakeholders:

Beyond the immediate financial and operational consequences, non-compliance with GST obligations can have a long-lasting impact on a business’s reputation and relationships. Suppliers and customers may lose confidence in a business that does not fulfill its tax obligations. They may prefer to engage with GST-compliant entities to minimize their compliance risks.

This break in trust can result in a loss of valuable business relationships and opportunities. Ultimately, a spoiled reputation may hinder a company’s growth and competitiveness in the marketplace, making it imperative for businesses to prioritize GST compliance to safeguard their standing within the business ecosystem.

Conclusion:

Not filing GSTR-9 can have a cascading effect on a business, ranging from financial penalties and legal repercussions to the loss of benefits and a damaged reputation. Compliance issues, such as audits and ITC loss, can disrupt operations and impose additional financial burdens. Businesses should prioritize timely and accurate GSTR-9 filing to avoid these adverse consequences and maintain their GST compliance record.

Author – CA Rahul Gupta