Non-Compliance and Penalties: Risks Faced by Regular Taxpayers

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Published Date:  21-12-2023   Author:   samradni-p
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The taxpayers must understand the risks and consequences of non-adherence to the GST regulations. Multiple charges and penalties are levied on taxpayers who don’t file GSTR-7 returns according to the requirements. It can even impact the growth and market image of the businesses. Hence, necessary steps must be taken for hassle-free business operations. Learn about everything associated with GST non-compliance and how to save yourself from financial setbacks.

Consequences of non-compliance with GST regulations for regular taxpayers

Penalties for non-filing or late filing of GST returns

If there is non-filing or late filing of GST returns, this may result in consequences and penalties mentioned below – 

  • Interest charged on late payment – If the taxpayer delays payment for GST returns, interest will be levied on the pending tax value. The government decides the interest rate. The charges are calculated from the due payment date until the completion is done.
  • Penalty for filing the returns late – Late charges are applicable on the late returns filing. Generally, the late fee is levied daily until the taxpayer files their return (there is a maximum limit in place).
  • Legal actions – Non-compliance with the GST rules results in legal actions such as penalties and audits. The tax authorities may even initiate investigations against the taxpayer. Criminal prosecution is conducted in serious cases of fraud and tax evasion.
  • Registration cancellation or suspension – Non-compliance with the rules and regulations of GST may result in cancellation or suspension of taxpayer registration. In such cases, the business may not be able to operate legally. They will also turn ineligible for input tax credits.

Businesses must adhere to taxpayer rules, meet their tax obligations, and file returns within the deadline to avoid such consequences and penalties.

Confiscation and seizure of goods

GST is levied on the goods and services that are used for supply. Non-compliance with the rules and regulations of GST may result in confiscation and seizure. The process includes the following – 

  • GST rules Non-Compliance – If taxpayers don’t comply, they may face multiple offenses like failure to register for GST. Other non-compliance rules include failure to pay the tax amount and incorrect return filing. Taxpayers may also have to deal with the charges against evading taxes and issuing fraudulent invoices for non-compliance. 
  • Issue of notice and investigation against the taxpayer – In case of suspected non-compliance, tax officials may issue a notice to the taxpayer. You are required to give your response on the notice. All the important info and clarification should be provided for non-compliance. Further investigation will be initiated accordingly.
  • Verification or audit of the records – The tax officials may verify or audit the accounts and records. It is done to check the taxpayer’s compliance with tax rules. The authorities can also verify other important documents, including books of accounts. They may even examine returns and invoices.
  • Seizure and detaining of goods – If the tax officials get any non-compliance evidence, they have the authority to detain and seize the goods. 
  • Show Cause Notice – Next, the tax officers send a show cause notice to the individual. The notice includes details of the seizure. The taxpayer can present their case within the designated time frame. They have the opportunity to present essential evidence or explanations.
  • Adjudication order – The tax authorities examine the response of the taxpayer and case details. The officer determines non-compliance and appropriate action is taken accordingly.

The confiscated items can be disposed of or auctioned according to the applicable laws. Plus, fines or penalties may be levied based on the seriousness level of the offense.

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Penalties and fines for non-compliance as a regular taxpayer

Late GST Returns Filing

  • Late charges for monthly tax returns – ₹20 daily (for nil returns) 
  • For tax returns excluding nil returns – ₹50 per day subject. (Maximum cap of ₹10,000 is applicable)
  • Late charges for failure to file yearly returns within the specified period – ₹ 200 per day. (Maximum cap of 0.25% of the individual’s turnover in the relevant union territory or state is applicable).

Threshold turnover limit for GST registration – 

  • For Services – ₹20 lakhs (Special category states – ₹10 lakh)
  • For Goods – ₹40 lakhs (Special category states – ₹20 – ₹10 lakh)

Penalty for incorrect issuance or non-issuance of e-invoice

Incorrect issuance or non-issuance of e-invoice is considered a GST offense. The taxpayer will be charged an e-invoice penalty as below – 

  • Penalty for e-invoice non-generation – ₹10,000 or 100% of the due tax amount (higher of the two)
  • Incorrect invoicing penalty – ₹25,000 for every invoice

Avoiding common GST non-compliance issues for regular taxpayers

You must avoid the following mistakes to save yourself GST non-compliance penalties and fines- 

Tax paid under the wrong tax category – 

Sometimes, individuals pay Tax or interest under the wrong tax category. It would help if you were extra careful when paying your taxes. GSTN doesn’t facilitate taxpayers with tax inter-utilization. 

Categorizing nil-rated supplies as zero-rated and vice versa Is a common mistake taxpayers make. Zero-rated supplies refer to goods used for export and Special Economic Zone supply. And nil-rated goods are supplies with a 0% tax rate. Taxpayers can’t claim the Input tax credit on nil-rated goods. Hence, you must enter the data carefully when filing GST returns.

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Failing to submit Nil Return – 

Filing a NIL return is mandatory for taxpayers if they don’t have business transactions for a given period. It allows the taxpayers to file subsequent GSTN returns without any trouble. 

Tax payment at incorrect rate – 

The Government updates tax rates occasionally. The businesses must keep themselves updated with the changes in the tax rate and pay their dues at the correct rate. 

Ineligible Input Tax Credit claim – 

In some cases, input tax credits can’t be availed to – non-suppliers within 180 days and are partly used inputs for personal purposes. ITC can also be availed on capital goods sold, free samples sent to business partners or customers, and goods destroyed. The GST department may issue notices to the taxpayer for wrongfully availing of input tax credit.

Minimizing risks and ensuring compliance as a registered regular taxpayer

Compliance with general goods and service tax (GST) in India is critical. Failure to comply may result in fines, destroy reputation, and make doing business challenging. Here are key steps businesses should take:

Filing Accurate Returns On Time

Submit file error-free GST returns on time. Ensure maintenance of purchase records, sales, invoices, and receipts to reconcile correct taxes. Ensure that you use the prescribed software and update yourselves concerning changes in GST laws.

Maintaining Updated Records

Maintain sales, expense, and tax records. You should reconcile all business transactions with GST returns regularly to find potential errors as soon as possible. It minimizes compliance risks and penalties.

Seeking Expert Guidance

Seek advice from a tax professional or accountant regarding GST provisions that affect your business. Use their expertise in enforcing compliance, proper billing, and input VAT.

Staying Up-To-Date

Keep track of GST authority notices and circulars relating to exemptions, tax rates, eligibility for return filing, and other updates. Ensure that you make appropriate adjustments in your GST compliance process.

Consequences of Non-Compliance

These penalties include fines, suspension, imprisonment for tax evasion, etc. Other issues are loss of input tax credits, seizure of goods, and damages to the company’s integrity in the eyes of its stakeholders.

Businesses can prevent penalties in GSR compliance and earn the trust of authorities and customers by taking proactive steps. Having regular professional consultations reduces compliance risks.

Seek professional guidance to mitigate non-compliance risks.

Getting advice from tax professionals and qualified accountants can eliminate GST non-compliance. They will explain the GST rules and provisions applicable to your business. Some key areas where they can advise are:

  • Sending of correct GST invoice based on tax rates.
  • Ensure you meet tax filing deadlines and requirements.
  • Maximizing eligible input tax credits

This is, their knowledge can assist in spotting any gaps or areas vulnerable to non-conformance. They have the authority to recommend corrective actions to be compliant.

External consultation provides a safeguard against unintentional mistakes and oversights. It greatly minimizes compliance risks, hence the legal issues and penalties. This further validates your compliance process with GST.

Protecting your business from enforcement actions and GST penalties

Taxpayers must take enough time to file their GST returns. It is also essential to track the business progress. It aids in ensuring that individuals comply with the GST mechanism. Keep track of the notices. In addition, inquire about the late fees and penalties. These, in turn, will ensure that your business is compliant with the law and shield it from penalties.

Conclusion

Businesses have to submit correct GST returns to comply with the tax laws. Filing of GST is riddled with some frequent errors often committed by taxpayers. Consider the above-discussed considerations and tips for precision purposes while filing for the GST returns. That enables organizations to be compliant and prevent incurring penalties. Businesses will have an opportunity to build trust in the market and among the tax authorities.

Frequently Asked Questions

1. what are the risks associated with GST non-compliance?

Non-compliance with GST exposes a business to numerous risks. You may have to give in to your company’s financial statement. It is a serious challenge that may affect new and young enterprises. Such non-conformance may make things difficult for business entities. For instance, you may require assistance in getting finance, acquiring a firm, merging, and so on.

2. What does the term taxpayer compliance stand for?

Tax compliance involves taxpayers’ voluntary adherence to the payment of taxes within the stipulated period.

3. How to check tax compliance?

When an individual registers for GST, he will be awarded with a GSTIN. Using this GSTIN, compliance ratings are easily tracked.

4. Do business owners manage their business properly without GST registration?

All small business owners are required to undertake GST registration. An entity must fulfill all the eligibility requirements before applying for the registration.

5. What is the penalty for GST non-compliance?

The various penalties for GST non-compliance in India: –

  • Interest on late tax payments
  • Monetary fines
  • Cancellation or suspension of GST registration.
  • Incarceration (for more severe cases).

6. What are the principal offences under the Goods and Service Tax?

These constitute illegal activities under GST regulations.

  • Wrong or fake invoices
  • Making of false financial statements or documents.
  • Goods transportation without valid documents
  • Fraudulently obtained SGST or CGST refund.
  • Issues relating to bills or invoices without service or goods supply.
  • Wrong information was supplied for the hearing, or no information was supplied.
  • Deliberate tax evasion
  • Concealment, alteration, or damage involving seized goods.

7. What are the potential effects of a supplier failing to comply with GST?

Failure to comply with such a rule means that the supplier cannot have any input tax credit claims. The GST-registered business will have the goods and the documents relating to them confiscated. At this point, the supplier pays a penalty fee and tax before they are released.

8. How is a business charged if it is not registered for GST?

Under the CGST Act-Section 122, if a taxable person does not obtain GST registration. The parties involved will pay the due tax amount plus ten thousand Indian rupees, whichever amount is higher.

9. Does the GST penalty reduce a taxpayer’s tax liability?

Under the Income Tax Act, the expense will not be permissible if the taxpayer pays the penalty per the GST Act. This is a penal expense.

10. Where does the taxpayer stand if he or she fails to reply to the GST notice?

The individual must act promptly. They also ought to respond duly to the notice within the stated duration. In case they do not act accordingly, they face legal action. By the rules, penalties and fines would be placed against the taxpayer.

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Samradni P

Meet Samradni Pradhan, a seasoned content writer with a passion for weaving narratives across diverse industries. Armed with a full-time MBA in Marketing, Samradni brings a wealth of experience garnered from elite advertising agencies such as Ogilvy and Mather and Lowe Lintas. With a dynamic career spanning 6 years, she has honed her craft by delving into various categories and niches, including technology, healthcare, fashion, lifestyle, and her speciality, BFSI.

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