Understanding Late Fees and Penalties for Delayed GST Return Filings

I. Late Fee for Monthly and Quarterly Returns (GSTR-1, GSTR-3B)

These are the most common returns. GSTR-1 reports outward supplies (sales), and GSTR-3B is a summary return for tax payment.

Daily Late Fee Per Return:

• Nil Returns (No tax liability): ₹20 per day (₹10 CGST + ₹10 SGST)

• Other than Nil Returns (Tax liability): ₹50 per day (₹25 CGST + ₹25 SGST)

Maximum Late Fee (per return):

The maximum late fee for GSTR-1 and GSTR-3B is rationalized based on the taxpayer's Annual Aggregate Turnover (AATO) in the previous financial year (from June 2021 return period onwards, as per Notification 19/2021-Central Tax):

• Nil Returns: ₹500 (₹250 CGST + ₹250 SGST)

• AATO up to ₹1.5 crore: ₹2,000 (₹1,000 CGST + ₹1,000 SGST)

• AATO between ₹1.5 crore and ₹5 crore: ₹5,000 (₹2,500 CGST + ₹2,500 SGST)

• AATO more than ₹5 crore: ₹10,000 (₹5,000 CGST + ₹5,000 SGST)

Clarification: The GST portal typically calculates and levies these late fees automatically. You generally cannot file a return without paying the applicable late fees.

II. Late Fee for Annual Returns

A. GSTR-9 (Annual Return for Regular Taxpayers)

GSTR-9 is filed by regular taxpayers. Its mandatory filing threshold has changed over the years. For many financial years, it has been optional for taxpayers with AATO up to ₹2 crore. GST-9C (Reconciliation is optional for taxpayers with AATO up to Rs. 5 crore .

Daily Late Fee (from FY 2022-23 onwards, as per Notification 7/2023-Central Tax):

• AATO up to ₹5 crore: ₹50 per day (₹25 CGST + ₹25 SGST)

• AATO more than ₹5 crore and up to ₹20 crore: ₹100 per day (₹50 CGST + ₹50 SGST)

• AATO more than ₹20 crore: ₹200 per day (₹100 CGST + ₹100 SGST)

Maximum Late Fee (from FY 2022-23 onwards):

• AATO up to ₹5 crore: 0.04% of turnover in the state or union territory (0.02% CGST + 0.02% SGST)

• AATO more than ₹5 crore and up to ₹20 crore: 0.04% of turnover in the state or union territory (0.02% CGST + 0.02% SGST)

• AATO more than ₹20 crore: 0.50% of turnover in the state or union territory (0.25% CGST + 0.25% SGST)

Historical Note: For financial years up to 2021-22, the late fee for GSTR-9 was ₹200 per day (₹100 CGST + ₹100 SGST), subject to a maximum of 0.25% of the taxpayer's turnover in the relevant state or union territory per Act.

B. GSTR-4 (Annual Return for Composition Taxpayers)

GSTR-4 is filed by taxpayers registered under the Composition Scheme.

Daily Late Fee (from FY 2021-22 onwards, as per Notification 21/2021-Central Tax):

• Nil Return: ₹20 per day (₹10 CGST + ₹10 SGST)

• Other than Nil Return: ₹50 per day (₹25 CGST + ₹25 SGST)

Maximum Late Fee:

• Nil Return: ₹500 (₹250 CGST + ₹250 SGST)

• Other than Nil Return: ₹2,000 (₹1,000 CGST + ₹1,000 SGST)

III. Other Returns and General Penalty

• GSTR-7 (TDS Filing): ₹50 per day (₹25 CGST + ₹25 SGST), capped at ₹2,000 (₹1,000 CGST + ₹1,000 SGST).

  • Note: For Nil GSTR-7 returns, there is no late fee. (As per Notification 14/2024-Central Tax for FY 2023-24, this relief was provided and often extended).

• GSTR-10 (Final Return): ₹200 per day (₹100 CGST + ₹100 SGST), with a maximum of ₹10,000 (₹5,000 CGST + ₹5,000 SGST).

• GSTR-5 (Non-Resident Taxable Person): ₹50 per day (₹25 CGST + ₹25 SGST) for other than Nil, and ₹20 per day (₹10 CGST + ₹10 SGST) for Nil returns, capped at ₹10,000 (₹5,000 CGST + ₹5,000 SGST). (similar for GSTR -5A for OIDAR services)

• GSTR-8 (E-commerce Operator - TCS): ₹200 per day (₹100 CGST + ₹100 SGST), capped at ₹10,000 (₹5,000 CGST + ₹5,000 SGST).

• General Penalty (Section 125): If no specific penalty is provided for a contravention of the Act or rules, a general penalty of up to ₹25,000 may be imposed. It's worth noting that recent High Court judgments have indicated that a general penalty under Section 125 may not be applicable if a specific late fee is already provided under Section 47 for late filing of returns. However, tax authorities might still levy it in certain cases, leading to litigation.

IV. Interest on Late Payment of GST (Section 50)

In addition to late fees, if there is any tax liability that is paid after the due date, interest is levied on the outstanding tax amount.

• Interest Rate: 18% per annum for delayed payment of tax.

• Calculation: Interest is calculated on the outstanding tax amount from the day after the due date until the date the payment is made.

• Excess ITC Claimed or Excess Reduction in Output Tax: Interest at 24% per annum.

Key Points on Penalties:

• Cash Payment: Late fees must be paid in cash through the electronic cash ledger and cannot be offset using Input Tax Credit (ITC). Interest also needs to be paid in cash.

• Auto-Calculation: The GST portal automatically calculates late fees and interest.

• Amnesty Schemes: The government frequently introduces amnesty schemes to provide relief from accumulated late fees for past non-compliance. Taxpayers should always check for such notifications. For instance, there was a scheme effective from November 1, 2024, to March 31, 2025, for waiving interest/penalty for demand notices under Section 73 (non-fraudulent cases) for FY 2017-18 to FY 2019-20.

Problems Faced by Businesses for Filing Late GST Returns

Beyond the direct financial penalties, late filing of GST returns can lead to a cascade of operational, financial, and reputational problems for businesses:

1. Blocking of Subsequent Returns: The GST system is designed in a way that you cannot file current or subsequent returns (e.g., GSTR-1, GSTR-3B) if previous period returns are not filed. This creates a chain reaction of non-compliance and accumulating penalties.

2. Impact on Input Tax Credit (ITC) for Recipients:

   • GSTR-1: If a supplier files GSTR-1 late, the recipients of those supplies cannot see the invoices in their GSTR-2A/2B in a timely manner. This delays their ability to claim ITC, causing cash flow issues for them. This can strain business relationships and lead to a loss of trust with customers.

   • GSTR-3B: If a supplier doesn't file GSTR-3B (and pay taxes), their outward supplies might not properly reflect on the recipient's end, further complicating ITC claims.

3. Suspension/Cancellation of GST Registration:

   • Regular Taxpayers: If GSTR-3B is not filed for a continuous period of six months (Rule 21 of CGST Rules), the GST registration can be suspended or even canceled by the department.

   • Composition Taxpayers: If GSTR-4 is not filed for three consecutive quarters, the registration can be canceled.

   • Once registration is suspended or canceled, the business cannot issue tax invoices, collect GST, or claim ITC, effectively halting its operations.

4. Restriction on E-Way Bill Generation: If a taxpayer fails to file GSTR-3B for two consecutive tax periods (months/quarters), they are restricted from generating e-way bills. This directly impacts the movement of goods and can bring the entire supply chain to a standstill, leading to significant business disruption and loss of orders.

5. Notices and Scrutiny from Tax Authorities: Late filing often triggers automated notices from the GST department (e.g., DRC-01A, DRC-03). Ignoring these notices can escalate into assessment proceedings (e.g., Best Judgment Assessment under Section 62 for non-filers) and audits, leading to further demands, penalties, and legal complications.

6. Difficulty in Obtaining Loans and Business Contracts: Financial institutions and potential business partners often review a company's GST compliance history as part of their due diligence. Consistent late filing or non-compliance can signal financial instability or poor management, making it difficult to secure loans, tenders, or new contracts.

7. Reputational Damage: In the business ecosystem, timely compliance is crucial for credibility. Late filing can damage a business's reputation with its suppliers, customers, and the market in general.

8. Increased Compliance Burden: When returns are filed late, businesses might also need to file revised returns or address discrepancies, adding to the administrative burden and requiring more time and resources.

9. Higher Overall Costs: The combination of late fees, interest, potential penalties from audits, and the cost of resolving operational issues (like delayed e-way bills or lost business) can significantly increase the overall cost of doing business.

10. Legal Consequences and Prosecution: In severe and repeated cases of non-compliance, particularly involving tax evasion, the GST authorities can initiate legal proceedings, including prosecution, which may lead to imprisonment and hefty fines.

To avoid these problems, businesses must prioritize timely and accurate GST return filing. Utilizing accounting software, setting up reminders, and regularly reconciling data are crucial steps to ensure compliance.