Penalties for incorrect HSN code Classification

                                   Penalties for incorrect HSN code Classification

Penalties for incorrect HSN code Classification


Wrong or Incorrect classification of goods using HSN codes can lead to huge penalties under GST. Here are the key penalties related with incorrect HSN code reporting:


Penalties on daily basis for Incorrect Reporting

If a taxpayer does not report the correct HSN code in GSTR-1, he is liable for a penalty of ₹50 per day for every lagged day. This amount can be exceed Rs. 5,000. For those whose annual turnover is less than ₹1.5 crore, it may be ₹20 per day.

Penalties for GSTR-9 Errors

Similar penalties apply for incorrect or omitted HSN codes in GSTR-9 filings, where a penalty of ₹50,000 may be levied. Additionally, if a taxpayer assists in GSTR-9 fraud by providing incorrect HSN codes, they may face a penalty of ₹25,000 .


Impact on Input Tax Credit (ITC)

Incorrect classification can lead to denial of Input Tax Credit claims. If goods are classified incorrectly, businesses may not be able to claim ITC on purchases, leading to increased costs.


Additional Consequences

Beyond financial penalties, incorrect HSN classification can result in:

Audits and Investigations: Frequent errors may trigger audits by tax authorities.

Rejection of Goods: Customs authorities may reject shipments if HSN codes do not match the declared goods.

Confiscation Risks: In severe cases, incorrect declarations can lead to confiscation of goods by customs.


General Compliance Penalties

Other penalties related to GST compliance include:

A penalty of 100% of the tax due or a minimum of ₹10,000 for wrongful charging of GST rates.

Interest charges on shortfalls due to incorrect HSN classification.


Conclusion

The HSN codes need to be classified accurately to maintain GST compliances. The consequences of a wrong report might quickly multiply and cause enormous financial as well as operational setbacks to the business house. So, it becomes highly necessary for taxpayers to check if they are applying the correct HSN codes when reporting their GST to avoid those penalties and continue their compliances with the tax.

For more read about "HSN Codes Guide 2024, GST Rates for Goods"

 

Rajveer Singh

Tax Law Page, led by Rajveer Singh, simplifies Tax Laws with 19+ years of expertise, offering insights, compliance strategies, and practical solutions.

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