Section 73 vs 74 vs 74A: the real cost of a GST demand notice

If you have received a show-cause notice from GST authorities — or fear one is coming — the section number on that notice is the first thing to look at. Section 73 and Section 74 are not just a numerical sequence. They represent two different legal tracks: one for defaults that are not due to fraud, one for fraud, wilful misstatement or suppression of facts. The penalty difference between them is not marginal: 10% of tax (or ₹10,000, whichever is higher) against 100% of tax.

For financial years from 2024-25 onwards, both sections have been replaced by a single provision, Section 74A, which unifies the procedure while preserving the fraud/non-fraud penalty split.

Direct answer: Section 73 covers short payment for reasons other than fraud (penalty 10% of tax or ₹10,000, whichever is higher); Section 74 covers fraud, wilful misstatement or suppression of facts (penalty equal to the tax). From FY 2024-25 onward, Section 74A applies to all demands under a single notice, with the same 10%/100% penalty split depending on whether fraud is involved. In every track, paying within the windows the Act allows removes or reduces the penalty.

Legal basis: CGST Act 2017, Sections 73, 74, 74A, 75, 107, 115, 128A — Sections 73 and 74 apply to periods up to FY 2023-24 (s.73(12), s.74(12)); Section 74A applies from FY 2024-25 (s.74A(12)). All inserted by the Finance (No. 2) Act 2024, notified through Notification No. 17/2024-CT dated 27.09.2024, effective 01.11.2024.

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What separates a Section 73 notice from a Section 74 notice?

The distinguishing criterion is intent.

Section 73 applies where tax has not been paid, has been short paid, has been erroneously refunded, or where input tax credit (ITC) has been wrongly availed or utilised — for any reason other than fraud, wilful misstatement or suppression of facts to evade tax (CGST Act s.73(1)).

Section 74 applies to the same set of defaults where they arise by reason of fraud, or any wilful misstatement or suppression of facts to evade tax (CGST Act s.74(1)). The section is triggered by that reason, not by the size of the amount.

In practice, the department decides which section applies when issuing the notice. If you receive a Section 74 notice and you believe the fraud allegation is unfounded, you can contest this at adjudication and in appeal. The CGST Act also provides a safety net: if an Appellate Authority, Appellate Tribunal or court concludes that the fraud or suppression charge has not been established, the proper officer must determine the tax as if the notice had been issued under Section 73 (CGST Act s.75(2)).

Coverage period: Section 73 and Section 74 cover only tax periods up to Financial Year 2023-24 (s.73(12) and s.74(12)). Demands for FY 2024-25 onwards fall under Section 74A (s.74A(12)).

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The penalty arithmetic: how much will a demand actually cost?

The penalty rates differ sharply between the two tracks and across the stages of the proceeding.

Tax and interest under Section 50 are payable in every case. Sources: CGST Act s.73(5)–(9), s.74(1), s.74(5), s.74(8), s.74(11), s.74A(5), s.74A(8), s.74A(9).

A practical illustration: if the demand is ₹10 lakh of tax under Section 74 and you neither pay nor settle, the order can levy a penalty equal to the tax — ₹10 lakh tax plus ₹10 lakh penalty, plus interest under Section 50. If you pay within 30 days of the order, the penalty drops to ₹5 lakh (50%). If you pay within 30 days of the show-cause notice, it drops to ₹2.5 lakh (25%). If you pay before the notice is served, it is ₹1.5 lakh (15%).

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How voluntary payment wipes out — or reduces — the penalty

Both sections build in explicit de-escalation windows. Using them is usually the most cost-effective response to a demand, provided you agree the tax is owed.

Under Section 73 (non-fraud, up to FY 2023-24):

Before the notice is served: Pay the tax and interest on your own assessment (or as ascertained by the officer) and inform the proper officer in writing. No notice will be served for the tax so paid or any penalty (s.73(5)–(6)).

Within 30 days of the show-cause notice: Pay the tax and interest. No penalty is payable and all proceedings in respect of the notice are deemed concluded (s.73(8)).

Note: If any self-assessed tax, or any amount collected as tax, remains unpaid for more than 30 days from its due date, the penalty under s.73(9) is payable regardless of these windows (s.73(11)). Section 74A(11) has the same rule.

Under Section 74 (fraud, up to FY 2023-24):

Before the notice is served: Pay tax + interest + 15% penalty. The proper officer will not serve the notice for the tax so paid (s.74(5)–(6)).

Within 30 days of the SCN: Pay tax + interest + 25% penalty. All proceedings in respect of the notice are deemed concluded (s.74(8)).

Within 30 days of the order: Pay tax + interest + 50% penalty. All proceedings in respect of the notice are deemed concluded (s.74(11)).

Under Section 74A (FY 2024-25 onwards):

The same stages apply, but the post-notice and post-order windows are 60 days instead of 30. Non-fraud cases: pay before the notice is served with no penalty, or pay tax and interest within 60 days of the SCN with no penalty (s.74A(8)). Fraud cases: 15% before the notice, 25% within 60 days of the notice, 50% within 60 days of the order (s.74A(9)).

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Section 74A: the new rules for FY 2024-25 onwards

Section 74A was inserted by the Finance (No. 2) Act 2024 and applies to tax demands for FY 2024-25 onwards (s.74A(12)). Its five most significant structural changes are:

1. A single notice for both fraud and non-fraud cases. Under the old regime, the section number on the notice announced the allegation. Under Section 74A, one provision governs the notice; the fraud/non-fraud distinction decides the penalty (s.74A(5)).

2. A fixed notice deadline. The proper officer must issue the SCN within 42 months from the due date of the annual return for the relevant financial year, or from the date of erroneous refund (s.74A(2)). Under the old regime the limits were set for the order — three years under Section 73 and five years under Section 74 — with the notice due at least three months (s.73) or six months (s.74) before that order deadline (s.73(2), s.73(10), s.74(2), s.74(10)).

3. 12-month order deadline. The order must follow within 12 months from the date the SCN is issued. The Commissioner, or an authorised officer not below the rank of Joint Commissioner, can extend this by a maximum of six months, with reasons recorded in writing, before the period expires (s.74A(7)).

4. De minimis threshold. No SCN can be issued if the tax involved for a financial year is less than ₹1,000 (s.74A(1) proviso).

5. Longer windows to pay and close the matter. Payment windows after the SCN and after the order are 60 days, against 30 days under Sections 73 and 74 (s.74A(8)(ii), s.74A(9)(ii)–(iii)).

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Pre-deposit to appeal to the Appellate Authority

If the adjudication order goes against you and you wish to appeal to the Appellate Authority under Section 107, you must first pay a pre-deposit.

The required pre-deposit under Section 107(6) is:

• In full, the part of the tax, interest, fine, fee and penalty arising from the order that you admit; plus
• 10% of the remaining tax in dispute, subject to a maximum of ₹20 crore (s.107(6)(b); the cap was reduced from ₹25 crore by the Finance (No. 2) Act 2024, Notification No. 17/2024-CT, effective 01.11.2024).

For an order that demands only a penalty, without any tax demand, the pre-deposit is 10% of the penalty (s.107(6) proviso, substituted by the Finance Act 2025, Notification No. 16/2025-CT dated 17.09.2025, effective 01.10.2025).

Once the pre-deposit is paid, recovery proceedings for the balance are deemed to be stayed (s.107(7)).

The appeal must be filed within three months from the date the order is communicated to you. The Appellate Authority can allow a further one month if you were prevented by sufficient cause (s.107(1), s.107(4)).

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The Section 128A waiver for old Section 73 demands

Section 128A (inserted by the Finance (No. 2) Act 2024, effective 01.11.2024) waives interest under Section 50 and penalty for demands under Section 73 for the period 1 July 2017 to 31 March 2020, at the notice, adjudication-order or first-appeal/revision-order stage, if the full tax was paid on or before the date notified by the Government (s.128A(1)). It was a one-time window, not a standing right: the application had to be filed within three months of the date notified under s.128A(1) (Rule 164(6), CGST Rules). The one later route is where a Section 74 demand is re-determined under Section 73 after an appellate or court direction: the application is then due within six months of the re-determination order (Rule 164(6), proviso).

A Section 74 notice is covered only where the order is re-determined under Section 73 following an appellate or court direction under Section 75(2) (s.128A(1), first proviso). The waiver does not cover amounts payable on account of erroneous refund (s.128A(2)). Once the waiver applies and proceedings are concluded, no appeal lies against that order (s.128A(4)).

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Frequently asked questions

Can the department issue a Section 74 notice without evidence of fraud?
Section 74 applies only where the default is "by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax" (s.74(1)). If the Appellate Authority, Tribunal or a court concludes that the charge is not established, the tax is determined as if the notice were issued under Section 73 (s.75(2)). Keep records of your compliance actions as evidence against a fraud allegation.

Does Section 74A replace Section 73 and 74 entirely?
Yes, for FY 2024-25 onwards. Sections 73(12) and 74(12) restrict those sections to periods up to FY 2023-24, and Section 74A applies from FY 2024-25 (s.74A(12)).

If I receive a Section 74 notice, can I still switch to the Section 73 penalty track?
Not by your choice — the department decides the track. You can contest the fraud allegation, and if it is not established on appeal, the tax is re-determined under Section 73 (s.75(2)). You cannot simply elect to pay at 10% to avoid the 100% penalty while the Section 74 allegation stands.

Is the pre-deposit refundable if the appeal succeeds?
Yes. Where the pre-deposit has to be refunded following the Appellate Authority's or Tribunal's order, interest at the rate specified under Section 56 is payable from the date of payment to the date of refund (s.115).

What if the 30-day window under Section 73(8) passes before I can pay?
The zero-penalty window in Section 73(8) is time-bound. Once 30 days from the SCN have passed without payment, the order will determine a penalty of 10% of tax or ₹10,000, whichever is higher (s.73(9)). Under Section 74A the equivalent window is 60 days (s.74A(8)(ii)).

Does paying within the window also close prosecution?
No. For Sections 73, 74 and 74A, "all proceedings in respect of the said notice" does not include proceedings under Section 132 (Explanation 1(i) to s.74; Explanation 1(i) to s.74A).

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Sources

• CGST Act 2017, Sections 73, 74, 74A, 75, 107, 115, 128A (bare law as of November 2025, GST & Indirect Taxes Committee, ICAI)
• Finance (No. 2) Act 2024 — inserting Sections 74A and 128A and sub-section (12) of Sections 73 and 74, and amending the Section 107(6)(b) cap — Notification No. 17/2024-CT dated 27.09.2024, w.e.f. 01.11.2024
• Finance Act 2025 — substituting the Section 107(6) proviso (penalty-only orders) — Notification No. 16/2025-CT dated 17.09.2025, w.e.f. 01.10.2025

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