A GST Section 73 notice is a show-cause notice (SCN) issued by tax authorities for non-fraudulent, unintentional cases of short payment, non-payment, erroneous refunds, or wrong Input Tax Credit (ITC) utilization. It is aimed at correcting genuine errors—such as incorrect tax rates, miscalculations, or clerical mistakes—rather than penalties for wilful tax evasion, allowing for quicker resolution.
What is Section 73 of the CGST Act? Section 73 of the CGST Act covers the procedure for the determination of GST demand in general cases where any ulterior motive (involves fraud, wilful misstatement, or suppression of facts) is not involved, if: Tax is not paid duly.
When taxpayers miscalculate their taxes, incorrectly classify their goods & services, use the incorrect tax rates, or underpay their taxes, they can get a GST notice from authorities. These notices inform the taxpayers that they must pay penalties or fines for miscalculating their tax payments.
In essence, Section 73 imposes a fixed penalty (10% of the tax amount, subject to a minimum of Rs. 10,000) where fraud, willful misstatement, or suppression is not alleged. Hence, even in the absence of a "guilty mind," the law contemplates a mandatory penalty once a short payment or wrong credit is established.
Section 73 applies to any tax liability when there is no suspicion of fraud, wilful misstatement or suppression of facts. Section 74 applies to a tax liability only when there is a suspicion of fraud, wilful misstatement or suppression of facts.
If there is an amnesty announced by the government for the default, then the GST penalty could be conditionally waived off.
The following category of tax persons are exempted from payment of 1% of GST in Cash 1. Registered taxpayers who have paid income tax above Rs 1.00 in Income Tax during the last two years continuously 2. Taxpayers who have zero-rated supplies without payment of duty and claimed refund of more than Rs 1.00 lac 3.
Daily Late Fee: A late fee of ₹50 per day is paid on Central GST (CGST) and State GST (SGST). The cumulative amount of the late fee is ₹100/day of CGST and SGST combined. Maximum Cap: The maximum amount of the late fee is ₹5,000 per type of returns (CGST and SGST).
Effective September 18, 2022, Senate Bill 1340 (Stats. 2022, ch. 425) amends section 73 to extend the new construction exclusion for active solar energy systems from 2023-24 to the 2025-26 fiscal year and changes the repeal date from January 1, 2025, to January 1, 2027.
If you are audited and found guilty of tax evasion or tax avoidance, you may face a fine of up to $100,000 and be guilty of a felony as provided under Section 7201 of the tax code. A simple mistake in a tax return won't be considered tax evasion.
The financial impact of ignoring a GST notice can be severe.
Besides heavy penalties and interest on unpaid tax, non-compliance can lead to blocked ITC, disrupted business operations, and reputational damage in front of clients or vendors.
The goods and services tax/harmonized sales tax (GST/HST) credit is a tax-free quarterly payment for individuals and families with low and modest incomes to help offset the GST or HST they pay. It may also include payments from provincial and territorial programs.
Consequences of not responding to a GST notice
Penalties: Financial penalties for non-compliance and late responses. Interest: Accrued interest on any unpaid taxes. Legal action: Initiation of legal proceedings for non-compliance. Cancellation of registration: Potential cancellation of GST registration.
Reply on Show Cause Notice Under Section 130 issued by tax officer
You face a penalty when you file your GST/HST return late if you owe money. The penalty equals 1% of your unpaid amount plus 0.25% of that amount for each full month your return is late. The maximum penalty period is 12 months. After that, no additional monthly charges apply.
If a person fails to register for GST within the prescribed time limit, he/she is liable to pay a penalty. The penalty for late registration of GST is 10% of the tax due or Rs. 10,000, whichever is higher.
(9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.
Voluntary Payment Benefit: Voluntary tax payment before issuance of a SCN significantly reduces penalties. SCN Timeframe: SCNs under Section 73 must be issued within 3 years.
Section 73 CATCA 2003 provides for a similar exemption for the proceeds of certain insurance policies taken out specifically to pay CAT on gifts or inheritances arising on future gifts made by the insured person during his or her lifetime.
Therefore, upon non –filing of GST returns or missing out the GST due dates, the GST law prescribes a general penalty. The maximum penalty that may be imposed is Rs. 5,000. The taxpayer will be required to pay interest on late payment of GST at a rate of 18% annually in addition to the late payment penalty.
An offender not paying tax or making short-payments has to pay a penalty of 10% of the tax amount due, subject to a minimum of Rs. 10,000. Therefore, the penalty will be high at 100% of the tax amount when the offender has evaded i.e., where there is a deliberate fraud.
In most of the Indian states, the GST threshold limit is ₹40 lakh for product-based businesses. Special category states such as Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand have a lower threshold of ₹20 lakh.
There are really only two circumstances where customers are exempt from paying GST. The first is if it falls under the basic exemptions such as basic food, sales at duty-free and some medicines for example. The other circumstance is when a business is small enough that they don't have to register for GST credits.
The New GST Rate Structure
The old four-slab structure (5%, 12%, 18%, 28%) has been simplified. The 12% and 28% slabs were eliminated and replaced with a new structure, which is now primarily 0%, 5%, 18%, and a 40% rate for luxury and “sin” goods.