By CA Arpan Bohra (FCA, CS), Arpan Bohra & Co., Chartered Accountants, Hyderabad. Position of law as at 20 October 2026.
A Hyderabad trader receives a show cause notice alleging that ₹10 lakh of input tax credit was wrongly availed. The notice cites section 74A, proposes interest and a penalty, and the first question in the room is whether this is a 10% case or a 100% case. A second client has a truck held on the highway with an expired e-way bill and wants to know what it costs to get the goods released. A third has missed three GSTR-3B filings. GST penalties are scattered across the Act, and each has its own trigger, quantum and escape route. This article maps them, with the 57th GST Council’s recommendations shown separately because they are not law.
The main exposures are: late fee under section 47 (₹100 a day, capped at ₹5,000, subject to reduced notified rates); interest under section 50 (up to 18% on delayed tax, up to 24% on undue credit); demand penalties under sections 73 (up to FY 2023-24) and 74A (FY 2024-25 onwards), at 10% of the tax or ₹10,000 where there is no fraud and 100% where there is; offence penalties under section 122; a general penalty up to ₹25,000 under section 125; detention under section 129; and prosecution under section 132 for tax above ₹1 crore. In non-fraud cases, paying tax and interest within the statutory window removes the penalty. The 57th GST Council has recommended relief on several of these, which needs amendment before it applies.
Late fee and interest
| Item | Provision | Position |
|---|---|---|
| Late fee | Section 47(1) | ₹100 for each day of default (₹50 each under CGST and SGST), capped at ₹5,000, for delay in returns under sections 37, 38, 39 or 45. The Government has notified lower per-day amounts and caps for classes of taxpayers and nil returns; check the current notification for the return and turnover band. |
| Late fee, annual return | Section 47(2) | ₹100 per day, capped at one-quarter of one per cent of turnover in the State or Union territory. |
| Interest on delayed tax | Section 50(1) | Up to 18% a year as notified, from the day after the due date. The proviso limits interest to the net cash liability, that is, the part paid in cash and not through credit (verify the current text). |
| Interest on undue or excess credit | Section 50(3) | Up to 24% a year as notified, on undue or excess input tax credit claims under section 42(10) or reduction in output tax under section 43(10). |
Demand cases: sections 73, 74 and 74A
Section 73 (non-fraud) and section 74 (fraud, wilful misstatement or suppression) govern demands for periods up to FY 2023-24. Section 74A, inserted by the Finance (No. 2) Act, 2024 and effective 1 November 2024, applies to FY 2024-25 onwards and merges the two with a single set of time limits: a notice within 42 months of the due date of the annual return and an order within 12 months of the notice, extendable by up to six months with reasons. No notice is issued where the tax for a financial year is below ₹1,000. Under section 73 the order is due within three years of the annual return due date, with the notice at least three months earlier. Section 74 has longer limits (verify the exact periods).
| Case | Penalty under s.74A (FY 2024-25 onwards) |
|---|---|
| Non-fraud: tax and interest paid before the notice | No notice and no penalty for that tax |
| Non-fraud: paid within 60 days of the notice | No penalty; proceedings end |
| Non-fraud: otherwise | Higher of 10% of the tax or ₹10,000 |
| Non-fraud: self-assessed tax not paid within 30 days of its due date | 10% penalty applies despite the above (s.74A(11)) |
| Fraud, wilful misstatement or suppression: pay before the notice | Tax, interest and 15% penalty; no notice for that tax |
| Fraud: pay within 60 days of the notice | Tax, interest and 25% penalty; proceedings end |
| Fraud: pay within 60 days of the order | Tax, interest and 50% penalty; proceedings end |
| Fraud: no payment | Penalty equal to 100% of the tax |
Section 122 and the general penalty
Section 122(1) imposes the higher of ₹10,000 or the tax evaded on a taxable person for listed offences, including supply without an invoice or with a false invoice, invoices without supply, collecting tax and not paying it within three months, taking credit without receipt of goods or services, fraudulent refunds, failure to register, suppressing turnover, and transporting goods without documents. Section 122(1A) extends liability to a person who retains the benefit of specified transactions at whose instance they were carried out. Section 122(2) applies to registered persons in other demand cases: the higher of ₹10,000 or 10% of the tax where there is no fraud, and the higher of ₹10,000 or the tax due where there is. Section 122(3) allows up to ₹25,000 on those who aid or abet, among others. Section 125 provides a general penalty up to ₹25,000 for contraventions with no specific penalty.
Detention, seizure and confiscation
Under section 129(1), goods and conveyances in transit in contravention of the Act can be detained and released on payment of tax plus an equal penalty (200% of tax) where the owner comes forward. For exempted goods the amount is 2% of value or ₹25,000, whichever is less. Where the owner does not come forward, the amount is the tax plus a penalty of 50% of value less tax already paid. Security can be furnished instead. The officer must give an opportunity of being heard (section 129(4)), and if payment is not made within seven days of detention or seizure, proceedings under section 130 for confiscation can follow (section 129(6)). Many disputes concern whether a procedural or documentary lapse justifies a penalty at all; see our note on e-way bill interception.
Prosecution and arrest
| Tax involved | Maximum imprisonment (s.132(1)) | Nature |
|---|---|---|
| More than ₹5 crore | 5 years and fine | Cognizable and non-bailable for offences in clauses (a) to (d) (s.132(5)) |
| More than ₹2 crore up to ₹5 crore | 3 years and fine | Non-cognizable and bailable |
| More than ₹1 crore up to ₹2 crore | 1 year and fine (other offences) | Non-cognizable and bailable |
| Specified lesser offences (clauses (f), (g), (j)) | 6 months, fine or both | Non-cognizable and bailable |
Prosecution requires the previous sanction of the Commissioner (section 132(6)). Repeat offenders face up to five years. Arrest powers sit in section 69; the 57th GST Council has recommended omitting section 69.
Worked example
A registered person has availed ₹10 lakh of ineligible credit in FY 2025-26, and a notice under section 74A alleges no fraud.
- Interest at 18% for six months (180 days): ₹10,00,000 × 18% × 180 ÷ 365 = about ₹88,767 (undue credit interest may be at the section 50(3) rate if applicable).
- If tax and interest are paid within 60 days of the notice: penalty nil.
- If not paid: penalty is the higher of 10% × ₹10 lakh = ₹1 lakh or ₹10,000, so ₹1 lakh.
- If the notice alleges fraud and it is upheld: penalty ₹10 lakh at 100%, or ₹1.5 lakh if tax, interest and 15% are paid before the notice, ₹2.5 lakh at 25% within 60 days of the notice, or ₹5 lakh at 50% within 60 days of the order.
For a detained consignment with tax of ₹90,000 and the owner coming forward, release requires ₹90,000 tax plus ₹90,000 penalty, ₹1.8 lakh in all.
Litigation angle and strategy
- Fraud versus non-fraud. The characterisation decides the quantum, the limitation period and the settlement window. The department must establish the ingredients of fraud, wilful misstatement or suppression; a mismatch or a supplier default does not by itself establish them. Treat the position as litigative and build the record on bona fide belief and disclosure.
- Settlement windows. Compute the benefit of paying within 60 days of the notice or the order against the cost of contesting. A reduced-penalty payment ends the proceedings.
- Duplicate penalties. Sections 122 and 125 penalties are deemed concluded for other persons where proceedings against the main person conclude under sections 73, 74 or 74A, but section 132 proceedings stand apart.
- Minor breaches. Section 126 limits penalties for minor, rectifiable procedural breaches without fraudulent intent (verify the monetary limit).
- Appeal. Orders are appealable under section 107 within three months, with pre-deposit of 10% of the disputed tax; a penalty-only appeal rule was substituted by the Finance Act, 2025 but the effective date was not notified when last checked.
What the 57th GST Council recommended
| Area | Recommendation (8 October 2026), not yet law |
|---|---|
| Section 125 general penalty | Reduce from ₹25,000 to ₹10,000 |
| Non-fraud demand penalty | 5% in specified non-fraud cases if tax and interest are paid within 30 days (section 73) or 60 days (section 74A) of the order |
| Prosecution threshold, section 132 | Raise from ₹1 crore to ₹5 crore |
| Arrest, section 69 | Omit |
| Late fee, section 39(1) | Waive for turnover up to ₹5 crore if the return is filed by the end of the month |
| Show cause notices | Minimum ₹10,000 of aggregate tax for a notice |
| Pre-deposit | Cap of ₹40 crore (₹20 crore CGST and ₹20 crore SGST) for penalty-only appeals |
These need amendment of the Act or Rules and notification. See our summary of the 57th meeting.
Frequently asked questions
What is the penalty for wrongly availed input tax credit?
What is the late fee for GST returns?
What interest is payable on late payment of GST?
What is the penalty for goods detained in transit?
When can GST prosecution happen?
Are the 57th GST Council penalty reliefs in force?
Arpan Bohra & Co., Chartered Accountants, Himayat Nagar, Hyderabad.
This article is shared for general professional education. Readers may write to the firm for information about its practice areas.
General educational information as at 20 October 2026. It is not legal or tax advice and does not create a professional relationship. Provisions, rates and thresholds change; verify the current law and notifications before acting. References to the 57th GST Council (8 October 2026) are to recommendations that need amendments or notifications before they have legal effect.
This article is for general information and is not professional advice. Law and rates change; please consult us before you act.