Penalties for incorrect HSN code Classification
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"