The complete guide to understanding penalties in GST

Penalties in GST

The introduction of the GST regime has brought India simplified tax filing, greater transparency, and less potential for tax evasion. Since the tax return filing process has been moved online, business owners now have to upload invoices and other documents as proof of transactions. To ensure that business owners are complying with the rules and regulations, the Government has created a list of non-compliant activities that are likely to invoke penalties. Let’s look at the various offenses and their consequences:

1. Carrying out fraudulent activities

• Not obtaining necessary GST registration for the business.
• Providing false information during registration.
• Providing false information or documents to the CGST/SGST tax officials.
• Obtaining tax refunds of CGST/SGST through fraudulent means.  

Consequence:

The offender will be fined Rs. 10,000 or the equivalent tax amount evaded. Furnishing false information will lead to a fine of Rs. 10,000 for the first offense, and continued offense will lead to fines of Rs. 100 per day, up to a maximum of Rs. 25,000. Any person who helps the offender will be fined Rs. 25,000.  

2. Delayed filing of returns

• Failing to furnish GSTR1 monthly returns for outward supplies (sales), which must be filed by registered suppliers before the 10th of the following month.
• Failing to furnish GSTR2 monthly returns for inward supplies (purchases), which must be filed by registered suppliers before the 15th of the following month.
• Failing to furnish GSTR9 annual returns, which must be filed by every registered person before 31st December of the following year.  

Consequence:

The offender will be fined Rs.100 per day per Act (Rs.100 for CGST and Rs.100 for SGST), up to a maximum of Rs. 5,000. If the taxpayer fails to furnish GSTR9, they will be fined Rs. 100 per day, up to a quarter of their turnover within the state in question.  

3. Not issuing accurate invoices

• Issuing incorrect or fraudulent invoices for the sale of goods or services.
• Supplying goods or services without issuing appropriate invoices.
• Misusing another taxable person’s ID number for the supply of goods or services.
• Issuing an invoice without supplying goods or services.  

Consequence:

The offender will be fined of Rs. 10,000 or the equivalent tax amount evaded.  

4. Supplying goods and services in contravention to GST laws

• Transporting taxable goods without appropriate documents.
• Transporting taxable goods without GST registration, despite being eligible for registration.
• Supplying or storing goods that are liable to confiscation, such as goods that would breach taxation rules or result in tax evasion.

Consequence:

If the offender chooses to come forward voluntarily, they will be fined an amount equivalent to the tax evaded. Otherwise, they will be fined 50% of the value of the supply.  

5. Evading taxes on purpose

• Failing to remit collected taxes to the Government within 3 months of the due date.
• Failing to deduct tax or deposit tax with the Government.
• Suppressing the turnover of goods/services to evade tax.
• Availing or utilizing full or partial ITC without proper sales receipt.  

Consequence:   The offender will pay a fine of Rs. 10,000 or the equivalent tax amount evaded.

6. Participating in activities that involve tampering/obstruction

• Tampering with or destroying legal documents or material evidence.
• Obstructing or preventing any tax official from discharging their duty.
• Tampering with goods after they have been confiscated or barred from supply/transport.  

Consequence:

These activities are judged very seriously. Offenders will be subjected to 6 months of imprisonment, plus a fine of an undisclosed amount.

7. Repeatedly making short payments

When the payment made is lesser than the legal requirement, it’s called short payment. A taxpayer is said to have made ‘repeated short payments’ if they were involved in 3 short payments in 3 returns during 6 consecutive tax periods.

Consequence: 

If a taxpayer is involved in this offense, they will be fined an amount of Rs. 10,000 or 10% of the short tax paid (whichever amount is higher).

Any other breach of law:

• Failing to maintain necessary books or documents.
• Failing to deduct TDS (Tax Deducted at Source) where applicable, or deducting an amount less than the required amount.
• Failing to collect TCS (Tax Collected at Source) where applicable, or collecting an amount less than the required amount.  

Common penalty:

Any offense under GST for which a penalty is not specified will be fined an amount up to Rs. 25,000. In case, the taxpayer is convicted for fraudulent activities, then apart from the above penalties, the following will apply:

• When the tax amount involved is up to 50 lakhs, the person will have to serve a jail term of 1 year and will be fined an amount equivalent to the tax evaded.
• When the tax amount ranges between 50 lakhs to 100 lakhs, then the person will have to serve a jail term of three years and pay the penalty.
• When the tax amount exceeds 100 lakhs, then jail term will be extended 5 years, along with the penalty.

What happens after a penalty is imposed on the taxpayer?

• When a penalty is imposed, the offender will be sent a notice and given a fair opportunity to be heard by the tax officials.
• The tax authorities will give the offender a summary of the reasons for the penalty, and the legal provisions under which the penalty has been imposed.
• If the offender chooses to voluntarily disclose infringement of law, the tax authorities may use the disclosure as leverage to reduce the penalty.

In the GST regime, taxpayers will not be penalized for minor offenses, if:

• The amount involved in the offense is less than Rs. 5000.
• The offense was committed unknowingly and is not backed up with any sort of malicious intent to evade taxes.
• The offense was committed due to lack of proper understanding of GST laws.
• The offense is easily rectifiable, like an omission or an erroneous record in a document.