Goods and Services Tax (GST) and Corporate Tax Planning · Compliance Rating, Anti-Profiteering, GST Practitioners and Authorised Representative

Anti-Profiteering Measure under Section 171 of CGST Act

Updated 11 October 2026 · Fact-checked

Anti-profiteering under Section 171 of the CGST Act requires a supplier to pass on any reduction in the GST rate, or the benefit of input tax credit, to the recipient through a commensurate price reduction. If the benefit is not passed on, the amount withheld is the profiteered amount, and a 10% penalty can apply.

Understand Anti-Profiteering Measure (Section 171)

GST changes the tax cost of a supply in two ways. The Government may cut the rate of tax. A supplier may also become entitled to input tax credit that it did not have before. Both lower the supplier's cost. Section 171 says that benefit belongs to the buyer, not to the supplier's margin.

The rule in Section 171(1) is simple. Any reduction in the rate of tax on any supply of goods or services, or the benefit of input tax credit, shall be passed on to the recipient by way of commensurate reduction in prices. Commensurate means the price falls in proportion to the benefit. A token cut does not satisfy the section.

Under Section 171(2), the Central Government may, on the Council's recommendation, notify an Authority, or empower an existing Authority, to examine whether the input tax credit availed or the rate reduction has actually resulted in a commensurate price reduction. The Authority exercises the powers and functions that are prescribed (Section 171(3)). The Act also says that the term Authority includes the Appellate Tribunal (Explanation 2).

The proviso to Section 171(2) lets the Government, on the Council's recommendations, notify a date after which the Authority will not accept any request for examination. A request for examination means a written application asking for this examination.

If the Authority concludes after examination that a registered person has profiteered, that person is liable to a penalty of ten per cent of the amount profiteered (Section 171(3A)). No penalty is leviable if the profiteered amount is deposited within thirty days of the date of the Authority's order. "Profiteered" means the amount determined on account of not passing the benefit of the rate reduction or of input tax credit to the recipient by way of commensurate price reduction.

Key rules to remember

Core obligation: Benefit of rate reduction or ITC → passed to recipient through commensurate reduction in price; Section 171(1). It covers both a reduction in the tax rate and the benefit of input tax credit.
Profiteered amount: Profiteered amount = Amount of benefit that should have been passed on − Amount actually passed on; This is a working method, not a formula printed in the Act. The Act defines profiteered as the amount determined on account of not passing on the benefit. Add GST on the base if the question asks for it.
Benefit from rate cut (illustration): Price cut due = Base price × (Old rate − New rate); Use when the base price is unchanged and the question treats the full tax saving as the benefit. Read the question for what price is given.
Penalty: Penalty = 10% × Profiteered amount; Section 171(3A). Not leviable if the profiteered amount is deposited within 30 days of the date of the Authority's order.
Authority: Authority includes the Appellate Tribunal; Explanation 2 to Section 171.

How to solve Anti-Profiteering Measure (Section 171) questions

Use this order for any scenario question on anti-profiteering. It follows the exam pattern of provision, analysis of facts and conclusion.

1Identify the trigger. Is it a reduction in the rate of tax, or a benefit of input tax credit, or both?
2State the rule: Section 171(1) requires the benefit to be passed on by a commensurate reduction in price.
3Work out the benefit that should have gone to the recipient. Use the old and new rate, or the extra ITC, with the base price given.
4Compare it with the price reduction the supplier actually gave. The shortfall is the profiteered amount.
5Apply Section 171(3A). Profiteering gives a penalty of 10% of the profiteered amount.
6Check the proviso. If the profiteered amount is deposited within 30 days of the Authority's order, no penalty is leviable.
7Write a clear conclusion: whether the supplier has profiteered, how much, the penalty, and any practical step such as reducing prices or depositing the amount.

Quickest way: Three-line check for profiteering problems

When to use it: Use when time is short and the question gives rates, prices and the price actually charged.

Line 1: Rule. Cite Section 171(1): benefit of rate cut or ITC must be passed on by commensurate price reduction.
Line 2: Number. Benefit due minus benefit given equals profiteered amount. Penalty is 10% of it.
Line 3: Conclusion. State whether the supplier profiteered and note that the penalty is not leviable if the amount is deposited within 30 days of the order.

Common mistakes in Anti-Profiteering Measure (Section 171)

Thinking Section 171 applies only to rate cuts.
Most news stories and examples talk about rate reductions.
Fix: Remember that the section covers two things: a reduction in tax rate and the benefit of input tax credit.
Applying the 10% penalty to the sale price or to the tax.
Students read penalty as a percentage of tax in general.
Fix: Under Section 171(3A) the penalty is 10% of the amount profiteered only.
Charging the penalty even when the amount is deposited in time.
The proviso is overlooked.
Fix: State that no penalty is leviable if the profiteered amount is deposited within thirty days of the date of the Authority's order.
Saying any price cut satisfies the rule.
Students forget the word commensurate.
Fix: The cut must match the benefit. Compute the benefit due and compare it with the cut given.
Writing that the Authority is a fixed body named in the Act.
Students memorise a name from older material.
Fix: Section 171(2) says the Central Government may notify an Authority or empower an existing one. Explanation 2 says it includes the Appellate Tribunal. Use the Act's wording.
Ignoring the cut-off for requests.
The proviso to Section 171(2) is easy to skip.
Fix: Mention that the Government may notify a date after which the Authority will not accept any request for examination.

Worked examples

Example 1

The GST rate on a product was reduced from 18% to 12%. Before the cut, Shree Foods Ltd sold the product to a distributor at a base price of ₹1,000 plus 18% GST, so the invoice price was ₹1,180. After the cut, it kept the invoice price at ₹1,180 and charged 12% GST on a higher base. Has it profiteered under Section 171? Assume the cost to the supplier is unchanged.

Show the solution

Trigger: reduction in the rate of tax from 18% to 12%.
Rule: Section 171(1) requires the benefit of the rate reduction to be passed on by a commensurate price reduction.
Benefit due: with the base price unchanged at ₹1,000, the new invoice price should be ₹1,000 + 12% of ₹1,000 = ₹1,120. The reduction due is ₹1,180 − ₹1,120 = ₹60.
Actually passed on: the invoice price stays ₹1,180, so the reduction given is ₹0.
Profiteered amount per unit: ₹60 − ₹0 = ₹60.
Conclusion: the supplier has not passed on the benefit and so has profiteered ₹60 per unit, if the Authority so finds after examination.

Answer: Yes. Shree Foods Ltd has not passed on the benefit. The profiteered amount is ₹60 per unit, on which a 10% penalty (₹6 per unit) applies under Section 171(3A) unless deposited within 30 days of the Authority's order.

Example 2

After examination, the Authority finds that Kaveri Builders Pvt Ltd profiteered ₹8,00,000 by not passing on the benefit of input tax credit to buyers. Compute the penalty. State the position if the amount is deposited within 30 days of the order.

Show the solution

Rule: Section 171(3A) imposes a penalty of ten per cent of the amount profiteered.
Penalty = 10% × ₹8,00,000 = ₹80,000.
Check the proviso: no penalty is leviable if the profiteered amount is deposited within thirty days of the date of passing of the order.
If the company deposits ₹8,00,000 within 30 days, the penalty is nil. If it does not, the penalty of ₹80,000 applies in addition to the profiteered amount.

Answer: The penalty is ₹80,000. It is not leviable if the ₹8,00,000 is deposited within 30 days of the date of the Authority's order.

Exam tips

Quote the exact words of Section 171(1): commensurate reduction in prices. Examiners look for this phrase.
Always cover both limbs: rate reduction and input tax credit benefit.
In numerical questions, show benefit due, benefit given and the shortfall as three separate lines.
Mention the 10% penalty and the 30-day deposit proviso in every conclusion that finds profiteering.
Do not quote a section number you are unsure of for procedure or rules. Say the powers are as prescribed, as Section 171(3) does.

Practice questions from Compliance Rating, Anti-Profiteering, GST Practitioners and Authorised Representative

Anti-Profiteering Measure (Section 171) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalAnti-Profiteering under Section 171 of CGST Act

Anti-Profiteering Measure (Section 171): frequently asked questions

What is anti-profiteering under GST?

It is the rule in Section 171 that a supplier must pass on any reduction in the tax rate or the benefit of input tax credit to the recipient through a commensurate reduction in price. The purpose is to ensure buyers gain from tax benefits.

How do you calculate the profiteered amount?

Work out the price reduction that should have been given because of the rate cut or extra ITC. Subtract the reduction actually given. The shortfall is the profiteered amount. The Act defines profiteered as the amount determined on account of not passing on the benefit.

What is the penalty under Section 171?

Under Section 171(3A), a registered person found to have profiteered is liable to a penalty equal to ten per cent of the amount profiteered. No penalty is leviable if the profiteered amount is deposited within thirty days of the date of the Authority's order.

Who examines profiteering complaints?

The Central Government, on the Council's recommendations, may notify an Authority or empower an existing Authority to examine the matter under Section 171(2). The Act says the term Authority includes the Appellate Tribunal.

Can the Authority stop accepting requests?

Yes. The proviso to Section 171(2) allows the Government, on the Council's recommendations, to notify a date from which the Authority will not accept any request for examination.