Indirect Tax Laws · Demands and Recovery

Penalty and Payment Before Notice or Order under GST

Updated 5 October 2026

If you pay the tax with interest before a show cause notice, or within the window after it, GST penalty is reduced or waived and proceedings end. In non-fraud cases, penalty is nil at those stages. In fraud-type cases, it is 15% before notice, 25% after notice and 50% after order. Check the tax period to find the window.

Understand Penalty and Payment Before Notice or Order

GST law wants the tax, not a fight. So it lets a taxpayer who admits a short payment close the matter cheaply. The earlier you pay, the lower the penalty. This is the logic behind every number in this topic.

The law splits demand cases into two kinds. The first kind is non-fraud: tax not paid, short paid, wrongly refunded or ITC wrongly availed or utilised, for reasons other than fraud, wilful misstatement or suppression of facts. The second kind is fraud-type: the same defaults, but caused by fraud, wilful misstatement or suppression of facts to evade tax. Fraud-type cases carry a heavier penalty, so the relief is stepped.

For non-fraud cases, the relief at the notice stage is simple. Pay the tax and interest before the notice, or within the prescribed period after the notice, and no penalty is payable. The proceedings in respect of that notice are deemed concluded.

At the order stage, the position depends on the tax period. For tax periods up to 2023-24, there is no relief under s.73 once the order is passed. If the tax is not paid, the order imposes a penalty of 10% of tax or ₹10,000, whichever is higher. For tax periods from 2024-25, a non-fraud order under s.74A also imposes a penalty of 10% of tax or ₹10,000, whichever is higher. There is no concluding payment option at the order stage for non-fraud cases.

For fraud-type cases, relief comes in three steps. Pay tax, interest and a 15% penalty before notice. Pay tax, interest and a 25% penalty within the prescribed period after the notice. Pay tax, interest and a 50% penalty within the prescribed period after the order. Pay nothing, and the penalty equals the tax (100%). Proceedings are concluded once the relevant payment is made.

The prescribed period depends on the tax period. For demands under the older separate provisions (tax periods up to 2023-24), it is 30 days, for both the notice step and the order step. For tax periods from 2024-25, the single combined demand provision applies and the period is 60 days, for both steps.

Map the windows to the provisions like this:

Tax periods up to 2023-24, non-fraud: s.73(5) and s.73(6) cover payment of tax and interest before notice, with written intimation to the proper officer. No notice is then served on that amount and no penalty is payable. s.73(8) gives nil penalty on payment within 30 days of the notice. s.73(9) is the order that imposes the penalty.
Tax periods up to 2023-24, fraud-type: s.74(5) is payment before notice (15%). s.74(8) is payment within 30 days of the notice (25%). s.74(11) is payment within 30 days of communication of the order (50%).
Tax periods from 2024-25, non-fraud: s.74A applies. Payment of tax and interest before notice, or within 60 days of the notice, means nil penalty. At the order stage, the penalty is 10% of tax or ₹10,000 (higher), and there is no concluding payment option.
Tax periods from 2024-25, fraud-type: s.74A applies. The steps are 15% before notice, 25% within 60 days of the notice and 50% within 60 days of communication of the order.

For 2024-25 onwards, cite s.74A as the provision and give the stage and window.

Always read the tax period in the question first.

Key rules to remember

Non-fraud: payment before notice: Tax + interest paid before notice → penalty = nil; Section 73(5) and (6) for tax periods up to 2023-24; s.74A for 2024-25 onwards. The taxpayer informs the proper officer in writing of the payment. No notice is then issued on that amount.
Non-fraud: payment after notice: Tax + interest paid within the prescribed period of notice → penalty = nil; proceedings concluded; Window is 30 days under s.73(8) for tax periods up to 2023-24, and 60 days under s.74A for tax periods from 2024-25.
Non-fraud: penalty if not paid: Penalty = 10% of tax or ₹10,000, whichever is higher; Imposed by the order under s.73(9) for tax periods up to 2023-24, and under s.74A for 2024-25 onwards. Nil penalty is available only on payment before notice or within the window after the notice. At the order stage, there is no reduced penalty or concluding payment in non-fraud cases under either provision.
Fraud-type: payment before notice: Penalty = 15% of tax, plus tax and interest; Section 74(5) for tax periods up to 2023-24; s.74A for 2024-25 onwards. Proceedings on that amount are concluded.
Fraud-type: payment after notice: Penalty = 25% of tax, plus tax and interest, within the prescribed period of notice; Section 74(8) with a 30-day window for tax periods up to 2023-24; s.74A with a 60-day window from 2024-25. All persons named in the notice must pay for proceedings to be concluded against all.
Fraud-type: payment after order: Penalty = 50% of tax, plus tax and interest, within the prescribed period of communication of the order; Section 74(11) with a 30-day window for tax periods up to 2023-24; s.74A with a 60-day window from 2024-25.
Fraud-type: full penalty: Penalty = 100% of tax; Applies when no relief step is used.

How to solve Penalty and Payment Before Notice or Order questions

Use this order for any question on payment before notice or order. Most marks are lost by skipping step 1 or step 2.

1Find the tax period. This tells you the provision and the window: s.73 or s.74 with 30 days (up to 2023-24), or s.74A with 60 days (from 2024-25).
2Classify the default: non-fraud, or fraud, wilful misstatement or suppression of facts.
3Mark the stage at which payment is made: before notice, after notice, or after order. Count the days from the date of notice or communication of order.
4Check what must be paid: tax, interest under the interest section, and penalty at the right rate. For non-fraud cases paid in time, penalty is nil.
5Compute the penalty on the tax amount in the notice. Use the right base: 15%, 25% or 50% of tax.
6Check that all conditions are met: payment within the window, and, in fraud-type cases, payment by all persons named in the notice.
7State the consequence: proceedings in respect of that notice are deemed concluded. If only part is paid, proceedings continue for the balance.
8Write the answer in provision, facts, conclusion form.

Quickest way: Stage and nature grid

When to use it: Use it for numerical or case questions where you must quickly state the penalty payable.

Draw a two-row grid: non-fraud and fraud-type.
Write the stages across: before notice, within window of notice, within window of order, no payment.
Fill non-fraud: nil, nil, then at the order stage the penalty of 10% of tax or ₹10,000 (higher). There is no reduced penalty or concluding payment at the order stage for non-fraud cases.
Fill fraud-type: 15%, 25%, 50%, 100% of tax.
Pick the cell from the facts, add interest, and write the conclusion that proceedings are concluded where the relief applies.

Common mistakes in Penalty and Payment Before Notice or Order

Applying a flat 30-day window to every case.
Older notes and past papers use 30 days, and the 60-day window for 2024-25 onwards is newer.
Fix: Read the tax period first. Use 30 days for older periods and 60 days for tax periods from 2024-25.
Charging 25% penalty in a non-fraud case.
Students mix up the two kinds of demand and carry the fraud-type percentages over.
Fix: Classify the default first. In non-fraud cases, timely payment means nil penalty.
Forgetting interest.
The question stresses penalty, so students compute only that.
Fix: Relief is available only if tax and interest are paid. Always list interest as a payable.
Computing the reduced penalty on tax plus interest.
Students treat the whole payment as the base.
Fix: The percentage is on the tax amount only.
Saying proceedings are concluded when only part of the demand is paid.
Students assume any payment ends the case.
Fix: Conclusion applies to the amount paid in full on time. Proceedings continue for the balance, and in fraud-type cases all persons named must pay.
Counting the window from the wrong date.
Students count from the date of the demand's cause instead of the notice or order.
Fix: Count from the date of issue of the notice or the date of communication of the order, as the facts state.

Worked examples

Example 1

Case: For 2022-23, Meera Traders short paid GST of ₹4,00,000 because it wrongly classified a supply. There was no fraud or suppression. A show cause notice was issued on 1 June 2024 for the tax. On 20 June 2024 the firm paid ₹4,00,000 plus the applicable interest. What penalty is payable and what is the effect?

Show the solution

Tax period is 2022-23, so s.73 applies and the window after notice is 30 days. Assume the notice of 1 June 2024 is a valid notice.
The default is non-fraud, as the facts say there was no fraud or suppression.
Payment was made 19 days after the notice (1 June to 20 June), which is within 30 days.
Tax and interest are paid in full, so no penalty is payable.
The proceedings in respect of the notice are deemed concluded.

Answer: No penalty is payable. Meera Traders owes only the tax of ₹4,00,000 and interest, both of which it has paid. The proceedings in respect of the notice are deemed concluded.

Example 2

Case: For 2024-25, Kiran Metals suppressed sales and short paid GST of ₹8,00,000. Compute the penalty if (a) it pays tax and interest before any notice, (b) it pays within 60 days of the notice, (c) it pays within 60 days of the communication of the order, (d) it does not pay and the order imposes full penalty.

Show the solution

The default involves suppression of facts, so it is a fraud-type case. The tax period is 2024-25, so s.74A applies and the window is 60 days.
(a) Before notice: 15% × ₹8,00,000 = ₹1,20,000.
(b) Within 60 days of notice: 25% × ₹8,00,000 = ₹2,00,000.
(c) Within 60 days of the order: 50% × ₹8,00,000 = ₹4,00,000.
(d) No payment: penalty equals the tax = ₹8,00,000.
In (a) to (c), tax and interest are also payable, and proceedings are concluded on payment.

Answer: (a) ₹1,20,000; (b) ₹2,00,000; (c) ₹4,00,000; (d) ₹8,00,000. In each case, tax of ₹8,00,000 and interest are additional. Cases (a) to (c) conclude the proceedings.

Exam tips

Start every answer by stating the tax period and whether the case is fraud-type. Examiners reward this classification.
Write the penalty percentages as a small table-like list in your answer: nil, 15%, 25%, 50%, 100%. It makes marking easy.
In case-scenario MCQs, check dates carefully. Many options differ only by whether the payment is inside or outside the window.
Mention interest and the conclusion of proceedings. Both are often part of the marking scheme.
Link this topic to the waiver of interest and penalty and to the demand overview, but answer only the asked provision.

Practice questions from Demands and Recovery

Penalty and Payment Before Notice or Order: frequently asked questions

Is there any penalty if I pay the tax before the show cause notice in a non-fraud case?

No. Under s.73(5) and (6) for tax periods up to 2023-24, and s.74A for 2024-25 onwards, you pay the tax with interest before the notice and inform the proper officer in writing. No penalty is payable and no notice is issued on that amount.

What is the penalty relief in fraud cases under GST?

The penalty is 15% of tax if paid before notice, 25% if paid within the prescribed period after notice, and 50% if paid within the prescribed period after the order. Without payment, the penalty equals the full tax. Interest is payable in all cases. These steps sit in s.74 for tax periods up to 2023-24 and in s.74A for 2024-25 onwards.

How many days do I get after the notice to pay and avoid penalty?

For tax periods up to 2023-24, it is 30 days from the notice (s.73(8) for non-fraud, s.74(8) for fraud-type), and 30 days from the order for the 50% step under s.74(11). For tax periods from 2024-25, s.74A applies and the window is 60 days from the notice and 60 days from communication of the order. Always check which period the question refers to.

Does payment always conclude the proceedings?

Proceedings are deemed concluded for the amount paid in full and on time. If you pay only part, proceedings continue for the balance. In fraud-type cases, all persons named in the notice must pay for proceedings to be concluded against all.