Compliance
Section 74A limits the window for GST demands from FY 2024-25 to 42 months, sets a 12‑month decision period and imposes a penalty of the higher of 10% of tax or ₹10,000, which can be avoided by paying tax and interest within 60 days of the notice.
Check your DPDP readiness — free More on the blogSection 74A of the Central Goods and Services Tax Act, 2017, came into force on 1 November 2024. It consolidates the earlier separate procedures for non‑fraudulent and fraudulent GST demands into a single regime for tax years starting FY 2024‑25. The provision applies when tax has not been paid, has been short‑paid, has been wrongly refunded, or when input tax credit has been incorrectly availed or utilised. A show‑cause notice is issued only if the amount in question exceeds ₹1,000 in a financial year.
The proper officer must serve the notice within 42 months from the due date of the annual return for the year concerned, or from the date of an erroneous refund. Once the notice is served, the officer has 12 months to pass an order, a period that can be extended by a senior officer for up to six additional months. This single window replaces the older dual time‑limits that applied under sections 73 and 74.
If the demand does not involve fraud, wilful misstatement or suppression of facts, the penalty is the higher of 10% of the tax liability or ₹10,000. In cases where fraud is established, the penalty equals the full amount of tax demanded. The provision also allows a reduced penalty in fraud cases: 15% if paid before the notice, 25% if paid within 60 days of the notice, and 50% if paid within 60 days of the order.
The key to avoiding any penalty is timing. In a non‑fraud scenario, once the notice is received, the taxpayer has a 60‑day window to settle the tax amount and the interest under section 50. If this is done, the matter is closed without any penalty, provided the self‑assessment rules are also complied with. Delaying payment until after the order is issued forfeits this benefit. Businesses often mistakenly apply the older time limits of sections 73 and 74, assuming a 5‑year window for non‑fraud demands. Section 74A fixes the period at 42 months irrespective of fraud allegations. This means that a demand raised after the deadline is invalid, and any attempt to enforce it may be challenged. Another common error is waiting for the order before paying. The law expressly permits penalty‑free settlement within 60 days of the notice. Paying after the order is issued, even in a non‑fraud case, will attract the standard 10% or ₹10,000 penalty, increasing the cost of compliance. Self‑assessed tax that remains unpaid for more than 30 days after its due date automatically triggers the 10% penalty, regardless of whether a notice has been served. This clause ensures that late self‑assessment is not treated as a harmless oversight and adds a financial cost to delayed compliance. Finally, a notice issued for one period can count as a notice for another period if the grounds are the same, as per section 74A(4). Ignoring this can lead to multiple penalties for the same error, inflating the overall liability.
A GST demand notice must be issued within 42 months from the due date of the annual return for the relevant financial year, or from the date of an erroneous refund. This single deadline applies to all demands for FY 2024‑25 onward.
When fraud is not involved, the penalty is the higher of 10% of the tax liability or ₹10,000. This amount is added to the tax and interest unless the taxpayer pays both within 60 days of receiving the notice.
Yes. If the tax and interest are paid before the notice is served, or within 60 days after the notice, no penalty is payable, provided the self‑assessed tax is not overdue by more than 30 days.
If fraud, wilful misstatement or suppression is proven, the penalty equals the full tax amount. However, the penalty can be reduced to 15% if paid before the notice, 25% if paid within 60 days of the notice, or 50% if paid within 60 days of the order.
Published 31 October 2026. Founder & CEO at VidhiSar. I have watched four companies pay for the same mistake, and it was never the mistake anyone expected. VidhiSar is software, not a law firm: every answer names the section it relies on so you can check it, and anything turning on your specific facts is worth putting to a professional. More about who builds this
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