Understanding GST Penalties (Sections 122, 73, and 74)
The Goods and Services Tax (GST) Act is equipped with strict penal provisions to deter tax evasion, fraud, and non-compliance. While late fees apply simply for filing a return past the due date, and interest applies for the time value of delayed payments, a penalty is a severe financial punishment levied when a taxpayer commits a specific offense.
Our GST Penalty Calculator allows you to accurately determine the statutory penalty amount you may face if you short-pay your taxes, either by genuine mistake or through willful suppression. (Note: If you are looking for a gst penalty calculator for delayed filing of returns, please use our Late Fee Calculator instead).
1. Non-Fraud or Genuine Errors (Section 73)
The law recognizes that human errors happen. If you fail to pay tax, short-pay tax, or wrongly avail Input Tax Credit (ITC) due to a genuine mistake or misinterpretation of the law—without any intent to evade tax—Section 73 applies.
- Penalty Rate: 10% of the tax due OR ₹10,000, whichever is higher.
- Relief: If you realize your mistake, calculate the tax and interest, and pay it before the GST officer issues a Show Cause Notice, no penalty will be levied at all. If you pay within 30 days of the notice, no penalty is levied.
2. Fraud or Willful Suppression (Section 74)
If the GST officer determines that you short-paid tax or wrongly claimed ITC by way of fraud, willful misstatement, or suppression of facts to actively evade taxes, the harsh provisions of Section 74 apply.
- Penalty Rate: 100% of the tax evaded OR ₹10,000, whichever is higher.
- Relief: If you voluntarily pay the tax and interest before the notice is issued, the penalty is reduced to 15%. If you pay within 30 days of receiving the notice, the penalty is reduced to 25%.
3. Specific Offenses (Section 122)
Section 122 lists 21 specific offenses that attract an immediate and severe penalty. The penalty for these offenses is 100% of the tax involved or ₹10,000, whichever is higher. Some of the most common offenses under this section include:
- Fake Invoices: Issuing an invoice without actually supplying any goods or services (to fraudulently pass on ITC).
- Unrecorded Sales: Supplying goods or services without issuing any invoice to evade tax.
- Failure to Register: Being liable to register under GST but failing to obtain registration.
- TDS/TCS Default: Failing to deduct TDS or collect TCS, or deducting it but failing to pay it to the government.
General Penalty (Section 125)
If you commit a minor procedural offense for which no specific penalty is defined in the Act, the officer can invoke the General Penalty clause under Section 125. This penalty can extend up to ₹25,000. Examples include failing to display your GSTIN on your business signboard or not maintaining proper accounts at the principal place of business.