Section 74A of the CGST Act: One Notice Regime for GST Demands from FY 2024-25

A GST officer reviewing the 2024-25 books of a Hyderabad trading company finds that ITC was claimed on invoices the supplier never reported. The officer asks: should this be treated as a Section 73 case, or a Section 74 case? For demands relating to FY 2024-25 onwards, that question no longer arises. Section 74A of the CGST Act, 2017 governs them all.

What is Section 74A? The short answer

Section 74A is a single provision for determining tax not paid or short paid, tax erroneously refunded, and input tax credit (ITC) wrongly availed or utilised. It applies to demands for FY 2024-25 and later years. It replaces the old split between Section 73 (non-fraud) and Section 74 (fraud, wilful misstatement or suppression), which continue to apply to earlier periods. Under Section 74A, one time limit applies to every case, and the penalty depends on how the matter ends.

Section 73, Section 74 and Section 74A compared

Point	Section 73 (to FY 2023-24)	Section 74 (to FY 2023-24)	Section 74A (FY 2024-25 onwards)
Trigger	Non-fraud default	Fraud, wilful misstatement, suppression	Both, in one section
Notice must be issued within	2 years 9 months from the due date of the annual return (or date of erroneous refund)	4 years 6 months	42 months (3 years 6 months)
Order must be passed within	3 years	5 years	12 months from the date of notice
Window to pay and cut penalty	30 days	30 days	60 days

The same table, in practical terms: the officer no longer needs to allege fraud to get a longer period. The 42-month window is uniform, and the shorter 12-month adjudication period puts the department on a tighter clock after the notice.

Penalty under Section 74A

The penalty is not fixed at the time of the notice. It depends on whether the case is a non-fraud case or a case involving fraud, wilful misstatement or suppression, and on when the taxpayer pays.

Stage of payment	Non-fraud cases	Fraud, wilful misstatement or suppression
Tax and interest paid before notice	No penalty	15% of tax
Paid within 60 days of notice	No penalty	25% of tax
Paid within 60 days of the order	10% of tax or Rs 10,000, whichever is higher	50% of tax
Case decided against the taxpayer later	10% of tax or Rs 10,000, whichever is higher	100% of tax

Interest on the tax is payable in addition. Always compute the tax, interest and penalty together before deciding whether to pay or contest.

Worked illustration: the 42-month clock

Assume the due date of the annual return for FY 2024-25 is 31 December 2025 (the notified due date can change, so use the date actually applicable). The department must then issue the notice by about 30 June 2029. If the notice is issued on 30 June 2029, the order must be passed within 12 months, that is, by 30 June 2030. This is an illustration of the arithmetic, not a prediction of any particular notice.

Common mistakes to avoid

1. Applying the wrong section. A notice for FY 2023-24 or earlier must be tested against Section 73 or 74; a notice for FY 2024-25 or later against Section 74A. A notice citing the wrong section can be challenged.
2. Missing the 60-day window. The window to pay and avoid penalty after the notice is 60 days. Calendar it from the date of communication.
3. Treating a reconciliation gap as fraud. A mismatch between returns and books, or GSTR-2B and GSTR-3B, is a difference to be explained. It does not by itself establish suppression or ineligible credit.
4. Ignoring the reply. Reply in time and place documents on record. See our guide on replying to a GST show-cause notice (DRC-01 and DRC-06).

If the order goes against you

An order under Section 74A can be appealed to the first appellate authority, and further to the GST Appellate Tribunal, subject to the pre-deposit rules. Our article on the GST appeal ladder from APL-01 to GSTAT explains the sequence, and Circular 259 of 2026 on pre-deposit is worth reading before filing.

Frequently asked questions

Does Section 74A apply to FY 2023-24?

No. Sections 73 and 74 continue for FY 2023-24 and earlier years. Section 74A applies to FY 2024-25 onwards.

Can the department allege fraud under Section 74A?

Yes. Section 74A has separate, higher penalty tiers for fraud, wilful misstatement or suppression of facts. The difference now lies in the penalty, not in the time limit.

Is penalty always payable?

In non-fraud cases, no penalty arises if tax and interest are paid before the notice or within 60 days of it. Penalty arises if the amount is paid only after the order or the case is decided against the taxpayer.

Which return date starts the 42 months?

The due date of the annual return for the financial year to which the demand relates, or the date of the erroneous refund in a refund case. Check the due date applicable to the year concerned.

Key takeaway

Section 74A simplifies the demand process by using one notice period and one structure for all defaults from FY 2024-25. The practical consequence is that the penalty stage, and not the label of the section, drives the strategy: pay early where the demand is correct, and contest with documents where it is not. This article is for general education and is not advice on any specific matter. Please verify the current text of the Act and notifications before acting.

Sources

CBIC GST: CGST Act, 2017, Sections 73, 74 and 74A (Finance Act, 2024 amendments)

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Arpan Bohra & Co., Chartered Accountants
Website: https://www.arpanbohra.co.in/
Email: ab@arpanbohra.co.in