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
- Supplying goods or services without a correct invoice or by issuing wrong or incorrect invoices.
- Issuing invoices without actually supplying goods or services.
- Use fake or incorrect invoices to claim Input Tax Credit (ITC).
- 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
- Fraudulently obtaining tax refunds or forging financial/sales records.
- Avoiding tax by suppressing turnover.
- Storing, supplying or transporting goods that are subject to confiscation under GST.
- Tampering with or destroying physical evidence.
- Destroying or interfering with goods that have been seized.
Registration Defaults
- Failing to get a mandatory GST registration.
- Providing false registration data.
Other Offences
- Obstructing GST workers while they are performing their work duties.
- Carrying taxable goods without the appropriate documents.
- Failing to keep or uphold good books and records.
- 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.
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 youapply 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.