GST Penalties in India: Types, Offences & Appeal Process

GST penalties are designed to ensure compliance with tax regulations in India. This blog covers the different types of penalties, related offences, and the appeal process under the GST Act. It also provides insights on how businesses can effectively manage penalties and avoid financial risks. Understanding these aspects helps businesses stay compliant and reduce potential penalties.

GST fines play a crucial role in India’s Goods and Services Tax (GST) system by promoting compliance and discouraging fraudulent or evasive behavior. Tax penalties are vital for maintaining the integrity of any tax framework, ensuring timely and accurate tax payments, and fostering accountability among taxpayers.

Common GST Penalties and Offences

Under the GST regime, various penalties are imposed for non-compliance, including but not limited to:

1. Late Payment of GST: Failure to pay GST on time attracts interest and late fees. The current interest rate is 18% per annum, while late filing incurs a penalty of ₹50 per day (₹25 for CGST and ₹25 for SGST), with a maximum cap of ₹10,000.
2. Wrongful Submission of Information: Providing incorrect details in GST returns can lead to penalties up to ₹10,000 or 10% of the tax due, whichever is higher.
3. Non-Adherence to GST Provisions: Offences such as issuing invoices without supplying goods, availing ineligible input tax credit, or failing to register under GST are liable to penalties.
4. Fraud and Tax Evasion: Intentional evasion or fraudulent activities can lead to a penalty equivalent to 100% of the tax amount evaded or ₹10,000, whichever is higher.

Interest on Penalties

Interest is charged in addition to penalties for late tax payments or inaccuracies. For example:

• Delayed Payment: Interest at 18% per annum is levied on the outstanding tax amount.
• Undue Claim of Input Tax Credit: Interest may go up to 24% per annum for misused credits.

Appeals and Responsibility

Businesses or individuals penalized under the GST Act have the right to appeal. Appeals can be filed before the Appellate Authority, provided they meet the procedural requirements outlined in the Act.

Responsibility for paying GST penalties typically falls on the defaulting taxpayer, whether an individual or an organization. Ensuring compliance with GST regulations is key to avoiding unnecessary fines and ensuring smooth business operations.

By understanding the nature of GST penalties and taking steps to ensure compliance, businesses can avoid potential disruptions and financial liabilities. This blog provides a comprehensive guide to GST penalties, helping businesses operate confidently within the legal framework.

Why Understanding GST Penalties is Crucial for Compliance?

• Understanding GST penalties helps businesses ensure GST compliance and avoid legal issues.
• The aversion of such negative tendencies as fraud and non-compliance with taxation within the country is the significance of the GST penalties. 
• Awareness of the overview of GST penalty helps the business firm in internalising the time for submissions as well as record keeping accurately. 
• Being aware of GST penalties allows businesses to avoid costly fines and legal complications.
• Staying informed about GST penalties ensures smooth operations within the framework of the GST Act.

Types of GST Penalties

As per the provisions of the GST Act, a late fee of ₹50 per day (₹25 for each CGST & SGST) is applicable for the late submission of the GST Returns with a maximum limit of ₹5,000. Further, an interest of 18% per annum will be charged on all pending tax dues.

• Late Filing Penalty

  • GST late filing penalty is: CGST and SGST, maximum Rs. 50 per day and hence Rs. 100 per day. 
  • GST late filing penalty Ras. 100 per day for IGST returns. 
  • However a maximum cap exists depending on returns types. 
  • All these penalties are however applicable so long as the follower’s set is in danger of collapsing and not forgiving the depth of forbearance withdrawal.

• Penalties for Non-Payment of GST

An offending taxpayer who does not pay tax or pays tax short will incur a 10% penalty on the tax amount payable subject to a minimum penalty of ₹10,000. Where there is an intent to deceive or evade payment of tax, the penalty may amount to 100% of the tax liability.

• ITC Reversal Penalty

• • ITC claims which are fake or which have been fabricated are outreach to impose penalties for incorrect or fraudulent Input Tax Credit.
  •  In case of incorrect or fraudulent ITC claims, the interest chargeable to such a claim is 24% per annum.
  •  This kind of penalty is imposed so as to ensure that there is no mistake or fraud in the claim of GST ITC.

Read more: Input Tax Credit

• Offences and Related Penalties under GST

• • Fraudulent Registration: Penalty of rupees Ten Thousand or 100 percent of the tax amount, whichever is higher.
  •  Issuing Fake Invoices: A penalty also like in that of fraudulent registration.
  •  Not Issuing Invoices: Penalty of an amount not exceeding ₹10,000.
  •  Interfering with GST officers: Penalty upto ₹25,000. 

Such penalties are only for grievous offences related to GST like in case of GST fraud and other fraudulent acts committed under the GST law.

Reverse Charge Mechanism (RCM) Penalty

• • Interest will be charged at 18% per annum from the due date until the tax is paid.
  • Penalties may be imposed under the GST Act for non-payment of tax.
  • The penalty amount can be as high as 100% of the tax due.

Categories of Offences under GST

This part defines the different classes of offences associated with GST and the legal implications resulting from those, assisting the business in knowing what it deems to be non-compliant behaviour under the provisions of GST Acts.

Minor and Major Breaches under GST

• Minor Infractions occur when the value of tax is limited to a sum of ₹5,000 or less such occurrences are likely to be followed up with a mere reprimand rather than a penalty.
• Major Offences transcends the limits of a tag of ₹5,000 and may attract punitive measures or court action.
• In relation to this classification, the comparative factors between minor and major infringement are the tax sums involved and the degree of the infringement committed.

GST Offences Related to Invoicing and Documentation

• Apart from the failure to issue invoices on the proper form in the case of taxable units where they should issue them, there are also offences related to issuance of incorrect invoices. 
• Making changes to fake invoices in order to reduce the amount of tax paid is a criminal offence under the GST Act and is punishable under law.
• The penalty for incorrect GST documents primarily comes into play when the total amount taxed which is shown on the invoice is less than what is specified resulting in risks of tax evasion.

GST Offences Related to Tax Evasion

• Under GST, tax evasion can be defined as where the firm actively cuts down on sales or taps engaging in tax evasion practice. 
• Citing ITC without availing real goods or services or generating phantom invoices to obtain credits is tantamount to tax fraud under GST. 
• Sanctions for tax delinquency under GST are very harsh and may involve both monetary fines and imprisonment

Who is Liable for GST Penalties?

Every person or company that does not pay tax fully or at all pays 10% of the outstanding tax amount as penalty with a lower limit of 10,000. However, if the default is due to endorsement of fair frauds or impersonation, the penalty may even reach 100% of the amount of tax which is being evaded.

Responsibility for Penalties in Business Structures

• Companies: The responsibility lies with directors, secretaries, and managers for GST penalty responsibility.
• LLPs: In Limited Liability Partnerships (LLPs), the partners are liable for penalties.
• Hindu Undivided Family (HUF): The Karta (head of the family) holds responsibility for any GST-related penalties.
• Trusts: The managing trustee is accountable for penalties incurred under the GST law.

How to Calculate GST Penalties?

• An offender who fails to pay tax or makes short payments must pay a penalty of 10% of the tax due.
• The minimum penalty is ₹10,000, regardless of the tax amount.
• The maximum penalty is 10% of the unpaid tax.

Using a GST Penalty Calculator

• A GST fine calculator is an important web-based system which assists business concerns in determining GST penalties for things such as late filing, ITC reversal, non-payment, etc. 
• It is absolutely advisable that one resorts to available official sites which include the GST portal where one will get the required penalty calculator or look for a credible third party site which has an online tool for calculating GST penalties. 
• These systems make working out the GST fines much easier by mechanically incorporating appropriate penalty rates and penalty conditions.

Manual Calculation of GST Penalties

• To manually calculate the GST penalties, it is important first to categorise the penalties (for example, whether it is for late filing, non-payment, etc.) 
• Late filing which is a common problem can be avoided by calculating the penalty according to the daily rate of ₹ 50 (inclusive of lethargy of both CGST and SGST) or ₹ 100 which is IGST inclusive and also subject to the maximum cap falling within those parameters. 
• Non-payment/short-payment attracts a penalty of 10% on the outstanding tax subject to a minimum of ten thousand rupees or xX, whichever is higher and threatens him with non-payment. 
• In the case of allowing a reversal of ITC or evasion during tax passing such as example inflicted on fraudulent ITC used a formula that incorporates a percentage penalty and they would be 24% interest correlated to the speculative claims.

How to Pay GST Penalties?

This section explains the step-by-step process for paying GST penalties both online and offline, ensuring compliance with tax regulations.

Steps for Paying GST Penalties via the GST Portal

• Step 1: Please access the GST Portal and go to the Services tab. 
• Step 2: Click Payments and then click on Create Challan.
• Step 3: A box will open containing descriptions of tax, interest, penalties and fees.
• Step 4: Kindly choose the Penalty category and remit the payment under the appropriate head CGST, SGST or IGST as applicable.

Opting for The online payment method for the gst registration penalties helps to simplify the process and quickens it as well.

Alternative Payment Methods for GST Penalties

• The offline payment methods for GST penalty include transactions using NEFT or RTGS services, or making the payments at the counter of authorised banks. 
• In case of any problem with the GST portal or its gross delay, the applicant should be directed to the GST helpline for support. 
• After payment is done using NEFT for GST penalties, it is advisable to provide the correct challan and reference number to prevent issues arising from it.

GST Penalty Appeals and Redressal

Addressing disputes over GST penalties requires a structured appeal process. Below are steps and documentation needed for filing appeals effectively.

Steps to File an Appeal Against a Demand Order

1. Access the GST Portal:
   • Visit gst.gov.in and log in using your User ID and Password.
2. Navigate to My Applications:
   • Go to Services > User Services > My Applications.
3. Initiate a New Appeal:
   • On the My Applications page, select Appeal to Appellate Authority as the application type from the drop-down menu.
   • Click the NEW APPLICATION button.
4. Choose Financial Year Details:
   • Indicate whether the order pertains to multiple financial years by selecting Yes or No.
   • Choose the relevant order type from the drop-down list.
   • Note 1: Multiple financial years apply to orders under Form GST DRC-07 and Form GST DRC-08 related to assessment or enforcement demands.
   • Note 2: If you choose Yes, additional options for multiple financial years will appear.
5. Enter Order Details:
   • Input the Order Number provided by the adjudicating authority in the Order No field and click SEARCH.
   • The Order Details page will display.
6. Select Dispute Category:
   • From the drop-down menu, pick the appropriate Category of the Case under Dispute.
   • Add the category by clicking the ADD button.
   • Notes:
     • The Date of Communication and Period of Dispute are pre-filled but can be edited if necessary.
     • Multiple dispute categories can be added using the ADD button.
     • To remove a category, use the DELETE button.
7. Download the GST APL-01 Template:
   • Click the click here link to download the Annexure to GST APL-01 Template.
8. Complete the Template:
   • Open the downloaded file and enable editing.
   • Fill in the required details and save the file.
9. Prepare for Submission:
   • Once all details are completed, proceed with filing the appeal.

Documentation Required for GST Penalty Appeals

In order to properly support your case in respect of GST penalties, make sure that you have the following documentation available:

• Copies of GST Returns:

Accurate and complete GST returns should be provided as proof of compliance.

• Tax Payment Proof:

Reimbursed or unused tax payments receipts showing tax payments evidencing compliance should be submitted.

• Supporting Evidence:

Attach any other useful documents for your case such as filled up invoices, audit sheets, communication letters, etc.

Conclusion on GST Penalties

GST penalties play a crucial role in ensuring compliance and deterring non-adherence under the GST framework. Key aspects include timely filing, accurate tax payments, and understanding the penalties for various offences like tax evasion and ITC misuse. The appeal process provides a structured way to address disputes, while tools like penalty calculators help businesses stay informed about potential liabilities. To manage penalties efficiently and maintain smooth operations, businesses should prioritise compliance and seek professional advice when needed. 

For expert guidance on GST compliance and penalty management, consult professionals who can streamline the process and offer solutions, ensuring smooth business operations within the GST framework. Reach out today to simplify GST compliance. 

FAQs on GST Penalties

Are GST penalties applicable for minor errors in returns?

GST penalties for minor errors, such as clerical mistakes, may be waived if the tax authorities deem them unintentional. However, repeated errors could attract scrutiny and penalties.

Can GST penalties be waived under special circumstances?

Yes, GST penalties may be waived under certain circumstances, such as technical glitches on the GST portal or if the government issues a notification granting relief.

What happens if a business repeatedly violates GST rules?

Repeated violations of GST rules can lead to higher penalties, cancellation of GST registration, or even prosecution, depending on the severity of the offence.

How is interest on delayed GST payments calculated?

Interest on delayed GST payments is calculated at 18% per annum on the unpaid tax amount, starting from the due date until the payment is made.

Is there a time limit for filing appeals against GST penalties?

Yes, appeals against GST penalties must generally be filed within three months from the date of communication of the order. Extensions may be granted under exceptional circumstances.