No GST Show Cause Notice (SCN) will be issued under Sections 73, 74 or 74A of the Central Goods and Services Tax (CGST) Act, 2017 when the total tax involved is less than ₹10,000. The GST Council recommended this limit at its 57th meeting on 8 October 2026, along with lower penalties in non-fraud cases and relief for small notices already pending.
These measures remain at the recommendation stage and will acquire legal effect only after the necessary amendments to the relevant laws and the issuance of applicable notifications and circulars. Until the CGST Act and the respective state GST laws are amended, the existing provisions governing notices and penalties will continue to apply.
What is the ₹10,000 threshold for GST demand notices?
The threshold is a minimum tax amount below which an officer cannot issue an SCN. It is calculated by adding CGST, SGST, IGST and compensation cess together, so a notice for ₹6,000 CGST and ₹6,000 SGST crosses the limit even though each head is below it.
The limit counts tax only. Interest and penalty are not included when calculating the ₹10,000 limit. The release also uses the words ‘less than ₹10,000’, which means a demand of exactly ₹10,000 can still lead to a notice unless the final law says otherwise.
The table below shows how the aggregate works:
|
Tax in the proposed notice |
Breakup |
Can an SCN be issued? |
|
₹9,600 |
₹4,800 CGST + ₹4,800 SGST |
No |
|
₹10,000 |
₹5,000 CGST + ₹5,000 SGST |
Yes |
|
₹12,000 |
₹6,000 CGST + ₹6,000 SGST |
Yes |
|
₹10,400 |
₹9,000 IGST + ₹1,400 cess |
Yes |
The limit does not cancel the tax itself. A business that owes ₹8,000 still has to pay it, with interest under Section 50 for the delay. The change only stops the department from starting formal demand proceedings for that amount.
Which GST proceedings does the ₹10,000 limit cover?
The Council recommended amending three demand sections of the CGST Act. These sections are used when tax is unpaid or short paid, a refund is wrongly granted, or Input Tax Credit (ITC) is wrongly availed or used. The threshold applies to the following demand sections of the CGST Act, depending on the nature of the case and the relevant tax period:
|
Section |
Used for |
Tax periods |
|---|---|---|
|
Section 73 |
Cases without fraud, wilful misstatement or suppression of facts |
FY 2017–18 to FY 2023–24 |
|
Section 74 |
Cases involving fraud, wilful misstatement or suppression of facts |
FY 2017–18 to FY 2023–24 |
|
Section 74A |
Both fraud and non-fraud cases |
FY 2024–25 onwards |
Since Section 74 is on the list, the limit applies to small fraud cases as well. Proceedings outside these three sections are a different matter.
What happens to GST notices already pending below ₹10,000?
Pending notices and appeals involving less than ₹10,000 will be decided as if the threshold had been in force when the notice was issued. In practice, such cases would be dropped. Union Finance Minister Nirmala Sitharaman said at the post-meeting briefing that notices already issued below the limit would be withdrawn.
The relief applies to cases still open on the day the amendment takes effect. Three situations need care:
- Pending notices: A notice received today still requires a reply within the specified time, as the amendment is not yet law. An unanswered notice may result in an order being passed without your side being heard.
- Orders already passed: Orders for which no appeal has been filed are not covered by the recommendation, which applies only to pending notices and appeals. A demand that has become final may remain unchanged.
- No refunds for past payments: The release does not provide for refunds of small demands paid before the proposed change takes effect.
How will the general GST penalty change?
The GST Council has recommended reducing the maximum general penalty under Section 125 of the CGST Act, 2017 from ₹25,000 to ₹10,000. This section applies when a person contravenes the Act or its rules, and no separate penalty is prescribed for that violation. The ₹10,000 limit is the maximum penalty, not a fixed amount.
The actual penalty may be lower, depending on the circumstances. This is currently only a recommendation, not an enacted change. The existing limit of ₹25,000 continues to apply until the relevant amendment comes into force.
What changes for penalties in non-fraud cases?
As per the 57th GST Council meeting, a non-fraud demand under Section 73 or Section 74A carries a penalty of 10% of the tax or ₹10,000, whichever is higher. The Council recommended three changes to this:
- Removal of the minimum penalty: The existing minimum penalty of ₹10,000 would be removed in non-fraud cases. The penalty would be 10% of the tax amount, without the minimum ₹10,000 requirement.
- Reduced penalty for timely settlement: The Council proposed a 5% penalty for qualifying non-fraud cases settled within 30 days of the adjudication order under Section 73 or 60 days under Section 74A. To conclude proceedings, the taxpayer would need to pay the tax, applicable interest and prescribed reduced penalty within the specified period, subject to the enacted provisions.
- Penalty treated as a charge: The Council has also recommended treating the penalty amount as a ‘charge’ when the taxpayer voluntarily pays the full tax, interest and penalty within the specified time. The final legal provisions will determine how and when this treatment applies.
The effect is largest on smaller demands. The figures below assume a non-fraud case under Section 74A. Interest is payable in every case and is not shown.
|
Tax demanded |
Penalty today |
Penalty after the minimum is removed |
Penalty if tax and interest are paid within 60 days of the order |
|---|---|---|---|
|
₹40,000 |
₹10,000 |
₹4,000 |
₹2,000 |
|
₹2,00,000 |
₹20,000 |
₹20,000 |
₹10,000 |
The 5% rate is conditional. If only the tax is paid, or payment comes after the 30-day or 60-day window, the 10% penalty applies. Fraud cases keep their own penalty slabs, which this recommendation does not change.
What hearing safeguards will taxpayers get?
The Council recommended a circular giving officers detailed guidelines for demand notices, adjudication orders and appeal orders. It will cover the quality of notices and orders, issuing them on time and following the principles of natural justice, including personal hearings.
Guidelines for demand proceedings
The circular will address the following:
- Quality and timelines: Notices and orders must meet quality standards and be issued on time.
- Fraud allegations: Fraud, wilful misstatement or suppression of facts can be alleged only on the merits of each case. This matters because a fraud allegation raises the penalty from 10% to 100% of the tax.
- Personal hearings: Section 75 of the CGST Act already requires an officer to offer a hearing when the taxpayer requests one in writing or when an adverse decision is planned. A hearing can be adjourned up to three times. The circular aims to ensure these rules are followed consistently across offices.
Personal hearings for blocked ITC
A separate recommendation amends Rule 86A of the CGST Rules, 2017. A business whose ITC is blocked in the electronic credit ledger will be able to file an objection and get a personal hearing before the officer decides.
Conclusion
The ₹10,000 limit protects businesses from small demand cases. Small gaps still have to be paid, and tax below the limit is still owed and attracts interest. Until the amendment is notified, reply to every notice on time and ask for a personal hearing in writing if you plan to contest it.
Most small notices start as mismatches between GSTR-1, GSTR-3B and GSTR-2B.
Catching them each month is cheaper than answering for them later. TallyPrime lets you reconcile your books with GST return data so that differences can be found and corrected before they reach the department.
