Filing Goods and Services Tax (GST) returns is an important part of complying with tax rules. While compliance helps in seamless business operation, non-compliance can lead to different GST penalties, which impact a business’s cash flow. This is why it is important to understand the GST penalty in India.

The GST Act, 2017, specifies 21 separate offences that attract a GST penalty in India. Some of these penalties are decided on a case-by-case and offence-by-offence basis. In this blog, we will understand the key GST penalties in India for the specified offences.

Why are GST Penalties Imposed on Businesses?

Under India’s GST law, tax authorities impose penalties to achieve compliance and integrity of the tax system. There are 21 offences specified in the GST Act, all of which pose a threat of revenue loss to the government. It also encourages unfair market competition. Here is why the tax authorities impose GST penalties in India:

• Deter intentional non-compliance and fraudulent behaviour with penalties that are more than the benefits of evasion.
• Encourage businesses to comply on time by imposing late fees and penalties.
• Safeguard the honest taxpayers by ensuring that the lawbreakers do not receive unfair advantages or misuse competition.
• Ensure on-time GST revenue collection to provide the government with a constant revenue to fund the infrastructure and welfare of the people.
• Strengthen the legal framework and make enforcement easier for the tax authorities.

21 Common Offences under the GST Act, 2017

Here are the common 21 offences for which a taxpayer or a business can be penalised:

Fake or Wrong Invoices

1. Supplying goods or services without a correct invoice or by issuing wrong or incorrect invoices.
2. Issuing invoices without actually supplying goods or services.
3. Use fake or incorrect invoices to claim Input Tax Credit (ITC).
4. Issuing invoices under the GSTIN of another registered person.

Tax Evasion and Non-Payment

• A taxpayer collects GST without paying the tax to the government within three months.
• Evading tax and fraudulently availing of ITC or return.
• Failing to deduct or remit the relevant tax deducted at source (TDS).
• Failure to collect or remit tax collected at source (TCS).
• Using ITC without the actual receipt of goods or services.
• Inappropriate allocation or use of ITC.

Fraud and Falsifying Documents

1. Fraudulently obtaining tax refunds or forging financial/sales records.
2. Avoiding tax by suppressing turnover.
3. Storing, supplying or transporting goods that are subject to confiscation under GST.
4. Tampering with or destroying physical evidence.
5. Destroying or interfering with goods that have been seized.

Registration Defaults

1. Failing to get a mandatory GST registration.
2. Providing false registration data.

Other Offences

1. Obstructing GST workers while they are performing their work duties.
2. Carrying taxable goods without the appropriate documents.
3. Failing to keep or uphold good books and records.
4. The inability to provide the necessary information or the submission of false documents in the course of proceedings.

To strike a balance between punishing wilful defaulters and allowing relief in case of actual errors, the GST framework recommends minimum and maximum limits of penalties.

Understanding Common GST Default Penalty

Here are the most common defaults that attract GST late fee, fines and penalties under the GST fine rules:

Non-Filing of GST Returns

The most common default is the failure to submit GST returns like GSTR-1 (outward supplies details) and GSTR-3B (summary return) by the stipulated due dates. This can be monthly or quarterly, based on the type of taxpayer. Here is the GST late fee you pay for not filing or filing late the GSTR returns:

• Total late fee of ₹100 per day, which is equally distributed between CGST (₹50) and SGST (₹50).
• The GST late fee is limited to ₹5,000 per type of return, but can quickly accumulate in case of several returns being late.
• The remaining tax amount is also charged with interest at 18% per annum and compounded on a daily basis until payment.
• Non-filing blocks the ITC claims on behalf of recipients, which affects the business cash flows.
• The non-filing (more than 3 years) can result in the permanent blocking of the returns in the GST portal and cancellation or suspension of GST registration.

Under-reporting of Taxable Supplies

Under-reporting refers to reporting less than the actual turnover, sales or taxable supplies. Common causes of under-reporting include fewer sales being reported in returns than invoices, omitting taxable supplies or making incorrect invoices. It also includes claiming inflated ITC on unsubstantiated purchases.

• Penalties of 10% of the amount of tax payable or a minimum of ₹10,000, which increase exponentially in the event of fraud.
• Interest on outstanding tax until proper payment and prosecution in court over willful evasion.
• Tax authorities can audit, inspect and scrutinise the business.

GST Late Fee Structure in India

The GST late fee is a fine that is charged on the late filing of GST returns after the due dates. This fee motivates prompt compliance. Here are the key elements of the GST late fee structure:

• Daily Late Fee: A late fee of ₹50 per day is paid on Central GST (CGST) and State GST (SGST). The cumulative amount of the late fee is ₹100/day of CGST and SGST combined.
• Maximum Cap: The maximum amount of the late fee is ₹5,000 per type of returns (CGST and SGST). Thus, taxpayers will not pay over ₹10,000 as a joint late fee CGST and SGST per return.
• Nil Returns: Nil returns to the file are subject to late fees. Failure to file nil returns before the due date also attracts the above-stated late fees.

Differences and New Developments

• In the case of late filing of GSTR-1 (outward supplies details), the late fee is ₹50/day with a limit of ₹5,000.
• From July 2025, all taxpayers are required to file GSTR-3B returns, and penalties are imposed in strict compliance with the late fee schedule.
• No late fee is charged on filing annual returns (GSTR-9) in case the tax dues are cleared.

Fraud Penalties under GST

Under the GST law, fraudulent activities are subject to strict punishment, which includes hefty fines and imprisonment. Here are the key penalties for fraud under GST law:

• In cases where tax evasion or fraud is proven, the penalty may be monumental, 100% to 300% of the amount of tax evaded.
• Even in cases where the percentage of tax calculated is less, a minimum penalty of ₹10,000 is imposed.
• Besides financial fines, the offenders also face imprisonment. The extent of imprisonment is based on the level of tax evasion:
  • Until 1 year for tax evasion of between ₹1 to ₹2 crore.
  • Three years for tax evasion of between ₹2 crore to ₹5 crore.
  • Five years for tax evasion of over ₹5 crore.
• Repeat offenders are subjected to severe punishment such as increased fines and longer jail terms.

Criminal Prosecutions and Consequences

• GST frauds are cognisable, non-bailable and non-compoundable.
• Tax authorities are allowed to arrest offenders and confiscate goods or documents during investigations.
• Convicted individuals are barred from holding certain positions or even engaging in business.

Waivers and Reductions in GST Penalties

Non-compliance, defaults, or fraudulent acts are penalised in the GST law. However, in certain cases, the government offers waivers and reductions. Here are the cases that qualify for waivers and reductions:

• Reasonable Causes: The GST law permits the authorities to omit penalties if the taxpayer proves that the default or delay was caused by reasonable causes like genuine illness, natural calamities or unavoidable technical problems.
• First-Time Default: First-time offenders, particularly those with minor defaults, can receive penalty reductions or waivers.
• Technical or Procedural Errors: The errors that are caused by technical problems or a lack of understanding of the rules qualify for waiver or reductions.
• Good Faith Effort: If a taxpayer demonstrates the ongoing effort to comply and corrects the errors as soon as they are detected, the authorities can offer a waiver on penalties under Section 157.
• Legal Waivers/Reductions: Sections 73 and 74 of the CGST Act give discretionary powers to the authorities to waive penalty in case the tax payable is paid before assessment, or the default was not intentional and due to real causes.

There are many benefits of complying with the GST rules. However, there are also penalties and fines associated with non-compliance. A high level of GST compliance not only helps your business avoid penalties and legal inconveniences but also creates a credible financial reputation. This proves especially useful when you apply for a business loan, as your GST record works as proof of income.

Frequently Asked Questions (FAQs)

1. What is a GST penalty?

A GST penalty is a fee that tax authorities charge in case of failure to comply with GST laws, such as delays, underpayment of tax, or fraud.

2. When does the GST penalty apply in India?

There are penalties for late returns, incorrect invoices, tax evasion, non-registration, and other crimes under the CGST Act, 2017.

3. What is the calculation of the GST late fee?

CGST and SGST late fee is ₹50 per day per return, with a limit of ₹5,000 per type of return.

4. Can you waive or reduce the GST penalty?

Yes, you can waive or reduce a GST default penalty in case of actual default on the basis of reasonable causes and for first-time offenders.

5. What are the typical reasons for GST defaults?

The common defaults include non-filing of returns, under-reporting of taxable supplies, incorrect ITC claims and non-payment of tax collected.

6. What are the penalties for GST fraud?

The penalties for fraud are between 100 to 300% of the tax evaded and imprisonment, depending on the amount of tax evaded.

7. Are interest charges and GST penalties different?

Yes, there are interest payments on late tax payments that are independent of daily fixed late payments or penalties.

8. What happens when GST returns are not filed within a period of more than 3 years?

The returns are barred from filing, and registration may be suspended or cancelled.

9. Is it possible to challenge a GST penalty order?

Yes, GST penalty orders can be appealed to the First Appellate Authority, GST Appellate Tribunal, High Court and Supreme Court.

10. What are the documents required to apply for a penalty waiver?

Documents to support reasonable cause, receipts of payments, and application forms as required by the authorities.