Even well-intentioned
taxpayers face GST penalties due to complex rules and overlooked
compliances. Here are 15 major GST return violations—many of which
are not visible at surface level but can cause notices,
ITC reversal, interest, or even audit.
1. ❌ Wrong
Filing in GSTR-1 Auto-Populates Incorrect GSTR-3B
Once you file GSTR-1 wrongly,
it auto-fills 3B, and with portal restrictions increasing, manual
corrections may not be allowed. Avoid mismatch in output tax and outward
supplies.
2. ⚠️ Non-Reversal of ITC
under Rule 37A – Supplier Didn’t Pay Tax
Rule 37A mandates
reversal of ITC if the supplier doesn’t deposit GST in their GSTR-3B by
the 30th November of the next financial year. Recipient must track
compliance of vendors or risk reversal and interest!
3. 📉 No
Reconciliation with GSTR-2B
2B is the final document for
eligible ITC—not 2A. Ignoring reconciliation will lead to over-claimed
ITC, which the system or officers can catch, leading to reversal with
penalty.
4. 💸 Purchase from
Cancelled GSTINs
Claiming ITC on purchases
from suppliers whose GSTIN is cancelled is invalid. This is
easy to overlook unless vendor status is regularly checked on the portal.
5. 🔐 Non-Compliance
with Rule 86B
If monthly turnover exceeds ₹50
lakh, 1% of GST must be paid in cash. Ignoring this can lead
to system restrictions or filing blockage.
6. 📆 Failure to Pay
Vendors Within 180 Days
Under Section 16(2), if payment
isn’t made within 180 days, ITC must be reversed with
interest, and can only be reclaimed after actual payment. This is a red
flag in assessments.
7. 🧮 ITC Reversal
for Exempt Supplies Not Done (Rule 42/43)
If you deal in both
taxable and exempt goods/services, a proportionate reversal under Rule 42
(inputs/services) & 43 (capital goods) is mandatory, but
frequently skipped.
8. 🪙 Miscellaneous
Incomes Not Reported
Scrap, commission, penalties,
forex gains — all such miscellaneous incomes are taxable. They must
be disclosed in outward supplies or else mismatches will occur with ITR.
9. 🔍 No GST Paid on
Advance Received
For certain goods and all
services, GST is applicable on advance receipt. If not declared
properly, mismatches between books and GSTR-1/3B arise.
10. 🧾 RCM
Liability Ignored on Common Expenses
Expenses like freight
(GTA), advocate fees, rent from unregistered persons, director remuneration may
attract RCM. Not discharging this liability = non-compliance + ITC
ineligibility.
11. 🧯 Incorrect
Valuation of Related Party Transactions
Even if no consideration is
involved, GST valuation rules apply to transactions with sister
companies, branches, or directors. Use open market value or Rule
28 provisions.
12. 🧷 Late
GSTR-1 Filing – No Late Fee, But Notice Still Possible
Many think they’re safe if no
late fee shows on portal, but officers can issue notice under Section
46 or 122, demanding penalty for late filing.
13. 🧾 Capital
Goods Supplied but ITC Not Reversed as per Rule 40(2)
When capital goods or
plant & machinery are sold, transferred, or disposed of,
the remaining Input Tax Credit must be reversed.
As per Rule 40(2) of CGST
Rules, ITC is reduced by 5% per quarter (or part) from the
date of invoice till the date of disposal. If not reversed or taxed correctly,
this attracts GST audit objections and recovery with
interest.
Example: If a machine purchased
in Jan 2023 is sold in June 2025 (i.e., 10 quarters later), 50% of ITC (5% ×
10) must be reduced from the originally claimed ITC, and only the balance can
be retained or taxed on the transaction value—whichever is higher.
14. 📊 Wrong
HSN/SAC Code Reporting
Incorrect HSN/SAC leads to rate
mismatch, especially now with auto-mapping of e-invoices &
e-way bills. Mandatory HSN disclosure applies to most taxpayers.
15. 🧾 Incorrect
Reporting in Table 4 of GSTR-3B
Misplacing RCM ITC,
import ITC or credit notes in wrong heads can lead to mismatches
in GSTR-9 and audit flags.
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