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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As per point no. 4 . Purchase from cancelled dealer. This is a litigating point. If ITC is reflected in 2B and you fulfill conditions as per section 16 of GST Act along with other conditions ITC should be availed otherwise you forfeit the same for ever.
Is Gst applicable on Schemes and income obtained thereoff. Can financial credit notes be substitute for 180 days payment
Is hsn code compulsary for turnover less than 2 crore