Penalties under GST

Penalties under GST comprise heavy fines and even jail term in some cases. While on one hand it is essential to improve the efficiency and effectiveness of system, on the other hand it might prove to be harsh for small players who do not have adequate resources yet.

Penalties under GST are as under –

For all the frauds, a person shall be liable to a penalty of Rs 10,000 or the following –

·       Tax evaded

·       Tax not deducted

·       Tax short deducted

·       Tax deducted but not paid

·       Tax not collected

·       Tax short collected

·       Tax collected but not paid

·       ITC availed/passed/distributed wrongly

·       Refund claimed fraudulently  

Whichever is higher.

It means person shall be liable to pay the amount involved or Rs 10,000 whichever is higher.

If a person supplies goods/services on which

·       Tax has not been paid

·       Short paid

·       Erroneously refunded

·       ITC has been wrongly claimed/refunded

Due to any reason other than the reason of fraud, any willful misstatement or suppression of facts to evade tax, he shall be liable to pay Rs 10,000 or 10% of such tax amount, whichever is higher.

In simple language, if you commit an offence deliberately then you will be liable to pay Rs 10,000 or the amount involved whichever is higher.

And if you commit a mistake, you shall be liable to pay Rs 10,000 or 10% of the amount involved, whichever is higher.

This leniency of government is highly appreciated.

If a person –              

·       Abets/helps another person in committing a fraud

·       Acquires/receives goods/services in violation of the rules of the act

·       Fails to turn up after getting summons from tax authorities

·       Fails to issue invoice as per GST rules

·       Fails to account for an invoice in his books of accounts,

He shall be liable to a penalty which may extend to Rs 25,000.

General Penalty – If a person contravenes any of the provision or rules under this act for which no penalty is separately provided for, he shall be liable to penalty which may extend to Rs 25,000.           

Minor Breach – No tax authority shall impose a fine or penalty for minor breach of tax regulations or procedural requirements. This means no penalty/fine shall be levied if a taxable person makes a small mistake which can be rectified easily and has been made without any fraudulent intention.

Minor breach shall be a breach wherein

·       Amount involved is less than Rs 5,000

·       Any mistake in documentation which is rectifiable

General rules regarding penalty –

·       Person on whom penalty is imposed will be served with a show cause notice giving information about the reason of penalty and nature of offence.

·       He will be given opportunity of being heard.

·       A person voluntarily disclosing breach done by him may get his penalty reduced.

The provisions regarding penalties in model GST law seem strict and rigid. However they are expected to ensure better compliance on the part of taxpayers. Also, tax authorities will keep a lenient approach towards taxpayers in the initial months and won’t penalize mistakes that are bound to happen due to newness of the system.

I hope this article was helpful to you. Keep looking at this space for regular updates on GST.