GST Penalties: Offenses, Late Fees & Interest

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Offences Under GST

There are a total of 21 offences identified by the GST law. Given below is a list of these offenses -

Offences with regards to invoicing and documentation

Offences with an intention to defraud

Offences with regards to tax evasion

Miscellaneous Offences

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Minor and Major Breach Under GST

The GST law categorizes the types of breaches under GST into two types -

• Minor Breach - A minor breach under GST is a breach wherein the tax amount involved is less than Rs.5000. A minor breach also includes breaches that can be rectified easily, such as errors or omissions in the documentation. The GST officer cannot impose heavy penalties for minor breaches. Sometimes, it can even be settled by issuing just a warning.
• Major Breach - If the tax amount exceeds Rs.5000, such breach is classified as a major breach. In such cases, penalties under the GST Act, including potential jail sentences, may be imposed based on the severity of the offense.

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Penalties for Offenses Under GST

Given below is the penalty for offences under GST -

1. Late Filing of GST Returns
Late filing attracts a late fee and interest:

• Late Fee: ₹50 per day (₹25 under CGST + ₹25 under SGST) for delayed GSTR-3B filing.
• No Late Fee on IGST.
• Interest: 18% per annum, calculated on the unpaid tax from the due date until payment.

2. Non-Filing of GST Returns
If a taxpayer fails to file GST returns:

• Late Fee: ₹20 per day (₹10 under CGST + ₹10 under SGST).
• Return Blocking: If a return is not filed, subsequent returns cannot be submitted.
  • Example: If GSTR-3B for April and May 2025 is not filed, GSTR-1 for June 2025 will be blocked.
  • For quarterly filers, failure to submit GSTR-3B for one period prevents filing GSTR-1 for the next quarter.
• Cascading Effect: Delayed filing leads to penalties and compliance issues.

3. For the 21 offenses with no intention of fraud or tax evasion

• Penalty: 10% of unpaid tax (minimum ₹10,000).
• Example: If tax is unpaid or short-paid, the penalty is 10% of the due amount, but not less than ₹10,000.

4. For the 21 offenses with intention of fraud or tax evasion

• Penalty: 100% of the tax evaded, with a minimum penalty of ₹10,000.
• Additional penalties for higher tax evasion:

  Tax Amount Involved	Jail Term	Fine
  ₹1-2 Crore	Up to 1 year	Yes
  ₹2-5 Crore	Up to 3 years	Yes
  Above ₹5 Crore (or repeat offense)	Up to 5 years	Yes

Fraud cases may also lead to prosecution, arrest, and additional penalties.

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GST Penalties for High-Value Frauds

High-value frauds under the GST Act involve cases where the unpaid tax amount exceeds ₹100 lakhs. These cases attract a monetary penalty of 10% of the unpaid tax (higher than ₹10,000) and may also lead to imprisonment.

Jail Sentences for High-Value Frauds:

• Jail term of up to 1 year for unpaid tax between ₹100 lakhs and less than ₹200 lakhs
• Jail term of up to 3 years for unpaid tax between ₹200 lakhs and less than ₹500 lakhs
• Jail term of up to 5 years for unpaid tax of ₹500 lakhs or more.

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Penalty for Aiding and Abetting GST Fraud

Under the GST Act, individuals or entities aiding in GST fraud, whether registered or unregistered, face a fixed penalty of ₹25,000. This penalty applies equally to all involved parties.

Actions Constituting Aiding and Abetting GST Fraud:

1. Assisting a GST-registered person/entity in committing fraud.
2. Acquiring goods or services while knowingly violating GST regulations.
3. Failing to justify or account for invoices listed in business records.
4. Issuing invoices that do not comply with GST rules.
5. Ignoring summons to appear before tax authorities for GST hearings.

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Offenses Without GST Penalties

Certain GST offenses do not attract monetary penalties but are subject to interest at 18% annually on the tax amount.

Instances Where No Penalty is Applicable:

1. Incorrect GST Charged: Charging CGST/SGST instead of IGST (or vice versa). The business must pay the correct GST and claim a refund for the wrongly charged tax.
2. Incorrect GST Filing: Errors in GST return filing incur 18% interest on tax shortfalls but no penalty.
3. Delayed Invoice Payments: While delayed payments do not attract penalties, any claimed input tax credit (ITC) must be reversed if payments are delayed beyond six months.
4. Wrong GST Rate Charged: Charging a lower GST rate than applicable leads to interest at 18% annually on the tax shortfall but no penalty.

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Appeals Process Under the GST Act

The GST Act provides an appeals process for registered individuals or entities dissatisfied with a penalty-related order or decision by a tax authority. This process applies uniformly, regardless of the type of offense or penalty.

Levels of Appeal:

First Appellate Authority
The first level of appeal allows individuals to challenge an order issued by the adjudicating authority.

Appellate Tribunal
The GST Appellate Tribunal, a quasi-judicial body, handles disputes and appeals against decisions made by the first appellate authority.

High Court
The State High Court serves as the next level of appeal for those contesting verdicts issued by the Appellate Tribunal.

Supreme Court
The Supreme Court, India’s apex judicial body, is the final authority for appealing decisions related to GST penalties or other tax-related matters. Its judgments are binding and final under current GST rules.

Inspection Under GST

The Joint Commissioner of SGST/CGST or a higher officer may order an inspection if they suspect tax evasion. If a person is found suppressing transactions, claiming excess input tax credit, or engaging in other fraudulent activities, the Joint Commissioner can authorize another officer (in writing) to inspect the business premises of the suspected taxpayer.

Search and Seizure Under GST

The Joint Commissioner of SGST/CGST may order a search if they have reasons to believe that:

• Goods subject to confiscation are present.
• Important documents, books, or other materials are hidden and may be relevant to tax proceedings.
• Such items can be seized as evidence during legal action.

Goods in Transit

When transporting goods valued above ₹50,000, the person in charge of the vehicle must carry:

• Invoice, bill of supply, or delivery challan.
• A copy of the e-way bill (either in physical form or via RFID).
• E-invoice, if applicable.

The tax authorities have the right to inspect goods in transit. If they find that the goods violate GST regulations, they can seize the goods, documents, and the transporting vehicle. The goods will be released only after payment of applicable tax and penalties. Before confiscation, the taxpayer may be given an option to pay a fine instead.

Compounding of Offenses Under GST

Compounding allows an accused person to settle a GST offense without undergoing a lengthy legal trial. Instead of appearing before a Magistrate, the accused can pay a compounding fee, which cannot exceed the maximum applicable fine under GST.

This process saves time and money, but it is not available for cases where the tax value involved exceeds ₹1 crore.

Prosecution Under GST

Prosecution refers to legal action taken against individuals who commit offenses under GST with fraudulent intent. Examples of prosecutable offenses include:

• Issuing invoices without supplying goods or services to fraudulently claim input tax credit or refunds.
• Fraudulently obtaining CGST/SGST refunds.
• Submitting false financial documents, records, or returns to evade taxes.
• Assisting others in committing tax fraud.

Arrest Under GST

The Commissioner of CGST/SGST can authorize the arrest of individuals suspected of committing serious GST offenses. The arrested individual must be informed of the reason for the arrest and presented before a magistrate within 24 hours in cases of cognizable offenses (such as fraud and counterfeiting).

Appeals Under GST

If a taxpayer disagrees with a GST order or decision, they can file an appeal. The appeals process follows these steps:

• First Appeal: Filed with the First Appellate Authority.
• National Appellate Tribunal: If the taxpayer is dissatisfied with the First Appellate Authority's decision.
• High Court: If the decision from the National Appellate Tribunal is disputed.
• Supreme Court: The final level of appeal.

Advance Ruling Under GST

To avoid lengthy disputes, taxpayers can seek an advance ruling from GST authorities before carrying out a business transaction. The advance ruling provides a written clarification on GST treatment for the proposed activity, helping businesses ensure compliance.

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