Goods and Services Tax (GST) and Corporate Tax Planning · Inspection, Search, Seizure, Offences and Penalties

Penalties under GST: Sections 122, 125 and 73

Updated 11 October 2026 · Fact-checked

GST penalties fall in three layers. Section 73 penalty for non-fraud short payment is the higher of 10% of tax or ₹10,000. Section 122 penalties cover listed offences, mostly the higher of ₹10,000 or the tax involved. Section 125 is a residual penalty of up to ₹25,000. Fraud cases carry a penalty equal to the tax.

Understand Penalties under GST

GST penalties punish non-compliance and are separate from tax and interest. Tax is the dues, interest is the cost of delay, and penalty is the punishment. Always keep the three apart in an answer.

Start with the general penalty in section 125. If you break the Act or rules and no other penalty is provided anywhere, the penalty may extend to ₹25,000. It is a fallback. Check sections 122 and 73 first.

Section 122 is the offence-based penalty. Sub-section (1) lists 21 offences, such as supplying without invoice, issuing an invoice without supply, collecting tax but not paying it beyond three months, taking ITC without receipt of goods, fraudulent refund, falsifying records, and failing to register. The penalty is the higher of ₹10,000 or the tax evaded, the tax not deducted or collected, the ITC wrongly availed or passed on, or the refund claimed. Sub-section (3) covers aiders and abettors, those who deal in goods liable to confiscation, those who fail to appear on summons, and those who fail to issue or account for an invoice. Their penalty may extend to ₹25,000.

Section 122(2) applies to a registered person where tax is not paid, short paid or erroneously refunded, or ITC is wrongly availed or utilised. If the reason is not fraud, the penalty is the higher of ₹10,000 or 10% of tax due. If the reason is fraud, wilful misstatement or suppression to evade tax, it is the higher of ₹10,000 or the tax due. That is the answer to 'how much penalty for fraud'.

Section 73 is the notice and adjudication route for non-fraud cases, for periods up to FY 2023-24. The officer issues a show cause notice, you may pay tax and interest, and the order follows. The fraud counterpart is section 74, which has the same structure but a heavier penalty. For periods from FY 2024-25 onwards, the Act uses a different section (74A) for both kinds of case. Check the current bare Act for it.

Key rules to remember

Section 125 general penalty: Penalty may extend to ₹25,000; Applies only where no penalty is separately provided in the Act. It is a ceiling ('may extend'), not a fixed amount.
Section 122(1) offence penalty: Higher of ₹10,000 and the tax evaded / tax not deducted or collected / ITC availed or passed on / refund claimed; Applies to a taxable person committing any of the listed offences (i) to (xxi).
Section 122(1A) beneficiary penalty: Penalty = tax evaded or ITC availed or passed on; On a person who retains the benefit of a transaction under clause (i), (ii), (vii) or (ix) and at whose instance it was conducted.
Section 122(1B) e-commerce operator: Higher of ₹10,000 and the tax involved had the supply been made by a registered person (other than a section 10 person); For an operator liable to collect TCS who allows supply by an unregistered or ineligible person, or gives wrong details in the section 52(4) statement.
Section 122(2)(a): non-fraud: Higher of ₹10,000 and 10% of tax due; Registered person; tax not paid, short paid, erroneously refunded, or ITC wrongly availed or utilised.
Section 122(2)(b): fraud: Higher of ₹10,000 and 100% of tax due; Where the reason is fraud, wilful misstatement or suppression of facts to evade tax.
Section 122(3) penalty: May extend to ₹25,000; Aiding or abetting, dealing in goods liable to confiscation, not appearing on summons, not issuing or accounting for an invoice.
Section 73 order penalty: Higher of 10% of tax and ₹10,000; Determined with tax and interest in the order under section 73(9).
Section 73 time limits: Notice at least 3 months before the order deadline; order within 3 years from the due date of the annual return for the relevant year (or from the date of erroneous refund); Applies to periods up to FY 2023-24.
Section 73 nil-penalty payment: Pay tax + interest within 30 days of the show cause notice: no penalty, proceedings concluded; Exception: self-assessed tax or tax collected but not paid within 30 days of its due date still attracts the penalty.
Payment before notice: Pay tax + interest on own or officer's ascertainment before notice: no notice or penalty for that tax; If the officer finds a shortfall, a notice is issued for the shortfall only.

How to solve Penalties under GST questions

Use this order for any penalty question. Facts decide the section, so identify them before you quote numbers.

1Read the facts and mark the act: invoice issue, ITC claim, non-payment, non-registration, records, summons, or fraud.
2Check whether the act is in the section 122(1) list or the sub-section (3) list. If it is, apply that penalty.
3If the case is simply tax short paid or ITC wrongly availed, decide whether fraud, wilful misstatement or suppression is present. If not, it is the non-fraud route (section 73 for periods up to FY 2023-24). If it is, it is the fraud route.
4Compute the penalty exactly: compare ₹10,000 with the tax or percentage and take the higher, or apply the 'may extend to' ceiling.
5Check for relief: payment before notice, payment within 30 days of the notice, and the exception for self-assessed or collected tax.
6Check the procedure: show cause notice, representation, order, and the time limits.
7Check whether other persons are liable: the person retaining the benefit, the recipient taking ITC without receipt of goods, aiders and abettors.
8State the conclusion with tax, interest and penalty shown separately.

Quickest way: Three-question penalty filter

When to use it: Use it when time is short and the question asks 'what penalty is leviable?'

Q1: Is the act a named offence in section 122? If yes, the penalty is the higher of ₹10,000 or the tax involved (or up to ₹25,000 under sub-section (3)).
Q2: If not, is it short payment or wrong ITC? Fraud means the penalty equals the tax (minimum ₹10,000). No fraud means 10% of tax (minimum ₹10,000).
Q3: If neither, section 125 gives up to ₹25,000.
Then add one line on relief: tax and interest paid within 30 days of the notice means no penalty in a non-fraud case.

Common mistakes in Penalties under GST

Applying 10% of tax without checking the ₹10,000 floor.
Students remember '10%' and forget 'whichever is higher'.
Fix: Always compute both figures and write the higher one. On tax of ₹60,000, 10% is ₹6,000, so the penalty is ₹10,000.
Treating section 125 as the main penalty section.
It is short and easy to remember, so it is overused.
Fix: Use it only when no penalty is separately provided. Check sections 122 and 73 first.
Forgetting that penalty is on top of tax and interest.
The word 'penalty' hides the other two components.
Fix: Show tax, interest under section 50 and penalty as three separate lines in the conclusion.
Saying section 73 penalty is nil whenever the tax is paid.
The 30-day concession is remembered without its conditions.
Fix: State that nil penalty needs payment of tax and interest within 30 days of the notice. Self-assessed tax or collected tax not paid within 30 days of its due date still attracts penalty.
Missing the penalty on the person who benefits or on the recipient.
Students focus only on the supplier.
Fix: Check section 122(1A) for the person retaining the benefit, and clause (vii) for anyone taking or using ITC without receiving the goods or services.
Treating the ₹25,000 limit as a fixed amount.
The phrase 'may extend to' is skipped.
Fix: Write 'up to ₹25,000'. The officer decides the amount within that ceiling.

Worked examples

Example 1

Anand Traders Pvt Ltd short paid CGST of ₹3,00,000 for FY 2022-23 because of a classification error. There was no fraud or suppression. A show cause notice is issued. Compute the penalty if (a) the company pays nothing, and (b) it pays the tax and interest within 30 days of the notice. Also compute the penalty for a similar case where the tax short paid is ₹60,000 and nothing is paid.

Show the solution

The case is a non-fraud short payment for a period up to FY 2023-24, so section 73 applies.
(a) The penalty in the order is the higher of 10% of tax and ₹10,000. 10% of ₹3,00,000 = ₹30,000. ₹30,000 is higher than ₹10,000.
(b) Under section 73(8), tax and interest paid within 30 days of the notice means no penalty and the proceedings are concluded. The company still pays interest under section 50.
Second case: 10% of ₹60,000 = ₹6,000, which is lower than ₹10,000, so the penalty is ₹10,000.

Answer: (a) Penalty ₹30,000 along with the tax and interest. (b) No penalty; tax and interest only. For the ₹60,000 case the penalty is ₹10,000.

Example 2

Rao Metals Ltd issues invoices for ₹44,00,000 without any supply of goods and passes on ITC of ₹8,00,000 to Sharma Enterprises, which uses it without receiving any goods. The person who arranged the scheme kept the benefit of it. State the penalties.

Show the solution

Issuing an invoice without supply is an offence under section 122(1)(ii). The penalty is the higher of ₹10,000 or the ITC passed on, which is ₹8,00,000.
Sharma Enterprises took and used ITC without receipt of goods, which is an offence under section 122(1)(vii). The penalty is the higher of ₹10,000 and the ITC availed, which is ₹8,00,000.
The person who arranged the transaction and retained its benefit is covered by section 122(1A). The penalty equals the ITC availed or passed on, which is ₹8,00,000.
Anyone who aided or abetted the offences is liable under section 122(3) to a penalty that may extend to ₹25,000.
The ITC is also recoverable with interest. Fraud also exposes the persons concerned to the offence provisions, which are separate from penalty.

Answer: Rao Metals: ₹8,00,000. Sharma Enterprises: ₹8,00,000. The beneficiary under section 122(1A): ₹8,00,000. Any aider or abettor: up to ₹25,000. ITC recovery with interest applies separately.

Exam tips

Write the section number with each penalty. Examiners reward 'section 122(1)(vii)' over 'ITC penalty'.
Present answers as provision, facts, computation and conclusion. Show 'higher of' with both figures.
Look for the fraud trigger words: 'wilful', 'suppressed', 'false invoice', 'fake'. They move the answer from the 10% rate to 100%.
Check the financial year in the question. Section 73 applies to periods up to FY 2023-24, and later periods fall under the Act's newer provision.
Learn the contrast between 122(2)(a) and 122(2)(b), and between 122(1) and 122(3). Questions often test only that difference.

Practice questions from Inspection, Search, Seizure, Offences and Penalties

Penalties under GST in other exams

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

Penalties under GST: frequently asked questions

What is the penalty under section 125 of the CGST Act?

Section 125 is the general penalty. Anyone who contravenes the Act or rules, where no penalty is separately provided, may be penalised up to ₹25,000. It does not apply if another section already provides a penalty for the act.

What is the difference between section 73 and section 74 penalty?

Section 73 covers cases without fraud, wilful misstatement or suppression. Its order penalty is the higher of 10% of tax or ₹10,000, and no penalty is levied if tax and interest are paid within 30 days of the notice. Section 74 covers fraud cases, with a penalty equal to the tax, and its reduced penalty options are less generous.

How much penalty applies for fraud under GST?

For a registered person who short pays tax or wrongly takes ITC by fraud, wilful misstatement or suppression, section 122(2)(b) imposes the higher of ₹10,000 or the tax due. Section 122(1) offences such as false invoices carry the higher of ₹10,000 or the tax or ITC involved.

Can I avoid penalty by paying tax before the notice?

Under section 73, if you pay the tax with interest before the notice, based on your own or the officer's ascertainment, the officer does not issue a notice for that tax or any penalty on it. If the amount paid falls short, a notice is issued for the shortfall.