In 2017, India undertook one of the most significant reforms in its tax structure by introducing the Goods and Services Tax (GST). The idea was simple but revolutionary: replace a complex, multi-layered system of state and central taxes with one unified, transparent structure. With one nation and one tax, there has been a significant reduction in interstate transaction costs. GST has resulted in competitive pricing and better labour efficiency. With the GST rate, businesses can now operate across the country without being worried about multiple tax slabs. Like any other rule, GST has its separate regulations, and non-compliance with the conditions can lead to hefty penalties. GST compliance ensures the smooth functioning of the business in the country and helps the government to collect taxes and prevent tax evasion. In this blog, we’ll walk you through the penalties for non-compliance under GST, the relevant provisions, and how businesses can avoid costly mistakes.
What Happens When a Business Fails to Comply with GST?
Any breach of provision of CGST Act, 2017 and Rules amounts to offence. It is mandatory for the businesses as well as persons associated in the business to comply with all rules and regulations set in the act. There are 21 offences under GST and committed any of these can lead to penalty and imprisonment in some cases.
1. Failure to Register under GST
GST registration is mandatory for businesses:
- Turnover exceeding:
- ₹40 Lakhs: For businesses engaged in the supply of goods (except for special category states).
- ₹20 Lakhs: For businesses engaged in the supply of goods in special category states like Jammu & Kashmir, Himachal Pradesh, Uttarakhand, etc.
- ₹20 Lakhs: For businesses providing services (except for special category states).
- ₹10 Lakhs: For service providers in special category states.
- Businesses supplying goods or services over e-commerce platforms
- Online platform businesses that provide a marketplace or platform for suppliers of goods/services
- Any business conducting a temporary or occasional supply of goods/services in India
If a business fails to register within the time frame, it faces:
- Penalty for Non-Registration: As per Section 122(1)(ii) of the CGST Act, businesses may face a penalty of ₹10,000 or the amount of tax payable, whichever is higher.
- Interest for Late Registration: If a business is late in registering for GST, interest is levied at 18% per annum on the tax due from the date the tax was due until the tax is actually paid, along with any penalties.
2. Failure to File GST Returns on Time
Every registered business under GST is required to file regular returns. Non-filing or late filing can lead to:
- Late Filing Fees: According to Section 47 of the CGST Act, 2017the late fee is ₹50 per day for late filing of returns, with a cap of ₹5,000. If no tax is due, the fee is ₹20 per day.
- Interest on Delayed Payments: Even after filing returns late, businesses are required to pay interest at the rate of 18% per annum on the tax payable. This interest is calculated from the due date of filing until the actual date of payment.
3. False or Incorrect Information in GST Returns
It is mandatory for businesses to provide correct and clear information while filing their GST along with Input Tax Credit (ITC). Businesses are required to provide accurate information in ITC. Any false, misleading, or incorrect information can lead to:
- A fine of ₹10,000 or the amount of tax evaded, whichever is higher.
- If it is found that the tax evasion is intentional or fraudulent such as creating fake invoices to claim ITC, then the individuals who are directly involved in committing the offence can face imprisonment of up to five years, along with fine.
4. Non-Payment of GST Collected from Customers
Collecting GST from customers but failing to remit it to the government is one of the gravest forms of non-compliance. The penalties for such actions include:
- Penalty for Non-Payment: Section 122(1)(v) of the CGST Act imposes a penalty equal to 100% of the tax due, along with interest at the rate of 18% per annum.
- Imprisonment for Evasion: Tax evasion is an offence against rem. Other than penalty, a person found guilty of non-payment of GST can face imprisonment for up to five years. If evasion of tax is more than ₹5 crore, the punishment the length of imprisonment can range from 1-5 years
5. Incorrect Classification of Goods and Services
Under GST, it is mandatory for businesses to classify their goods and services correctly to apply the right tax rate. If a business misclassifies a product or service, whether it’s by mistake or to avoid paying the correct tax, it can result in penalties.
For example, if a business labels a product incorrectly to take advantage of a lower tax rate, or even if they simply make an error, it can lead to fines.
- Penalty for misclassification: If goods or services are misclassified, the penalty can range from ₹10,000 to ₹25,000. The exact amount depends on how serious the misclassification was and whether it was done on purpose to avoid paying the correct tax.
6. Failure to Maintain Proper Records
CGST Act 2017 requires that businesses maintain proper records of their transactions, including invoices, receipts, and other documents related to the supply of goods and services. Businesses are mandated to keep the record of aforesaid for at least six years.
- Penalty for Not Maintaining Records: If a business fails to maintain the necessary records, as stipulated in Section 35 of the CGST Act, 2017 it could face a penalty starting from ₹25,000.
7. Fake Invoicing and Misuse of Input Tax Credit (ITC)
One of the most serious offences under GST is fake invoicing, which means creating false invoices to claim Input Tax Credit (ITC) that was never actually paid. This is considered a form of fraud, and the penalties for this offence can be severe.
- Penalty for Fake Invoicing: If a business is found issuing fake invoices to claim fraudulent ITC, it may face a penalty under Section 122(1)(vi) of the CGST Act. The penalty could be ₹10,000 or the amount of tax evaded, whichever is higher.
- Imprisonment for Fraud: If the fraudulent activity is significant, particularly involving large sums of money, then the individuals who are directly involved in committing the offence can face imprisonment of up to five years along with a fine.
8. Non-Payment of Tax
If the business does not pay tax to the government it can face penalty of 10% of the tax due of ₹10,000, whichever is higher. 18% interest shall also be imposed on the business on any non-paid tax or if tax is paid late.
9. Failure to issue Invoice:
It is mandatory for all businesses to issue invoices for every supply that is taxable. If an invoice is not issued, then a penalty of ₹25,000 shall imposed for each such instance.
10. Non-payment of tax collected
If a business collects tax from customers but does not remit it to the government, it will face a penalty of 100% of the tax due, along with interest of 18% per annum.
11. Aiding or Abetting GST violation
If any individual is found guilty of aiding or abetting tax violation, then the person will be penalized with imprisonment for up to 5 years along with a fine.
Conclusion
GST was introduced to simplify the tax system. Complying with GST is not just about avoiding penalties. Rather, it is about ensuring that your business operates smoothly and in line with the law. After all, getting things right from the start saves you time, money, and a lot of headaches down the road. Complying with the regulations is equally required as taking advantage of the GST regime. Any non-compliance with GST regulations is considered an offence, and the consequences of any of the offences can be huge. It can damage the reputation of the business in the eyes of customers as well as the government. Therefore, stay informed about compliance, be proactive in understanding any new developments in the existing rules, and consult a professional to help you out with a complex web of rules.
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FAQs
- What is the penalty for late GST return filing?
The penalty for late GST filing is ₹50 per day (₹20 for taxpayers with no tax liability), capped at ₹5,000. Interest at 18% per annum is also charged on the tax due.
- Can I be penalized for not paying GST collected from customers?
Yes, failure to remit GST collected from customers to the government attracts a penalty equal to 100% of the tax due, along with 18% interest per annum.
- What happens if I file incorrect information in my GST returns?
If you provide false or incorrect information, you could face a penalty of ₹10,000 or the amount of tax evaded. Serious cases can lead to prosecution and imprisonment for up to five years.
- How severe is the penalty for fake invoicing?
Fake invoicing and misuse of ITC can lead to a penalty of ₹10,000 or the tax evaded, along with potential imprisonment of up to five years.
- Is it mandatory to maintain records under GST?
Yes, GST law requires businesses to maintain records for at least six years. Non-compliance can result in a penalty starting from ₹25,000.
- What happens if I don’t register for GST on time?
If you fail to register for GST when required, you will face a penalty of ₹10,000 or the amount of tax payable, whichever is higher, along with interest.
