Introduction: Understanding GST and the Risk of Underpayment
Most GST underpayment isn't fraud. It's a ₹500 error on one product's rate, repeated across 300 invoices, compounding quietly for three months — until an automated GSTN mismatch notice lands in your inbox.
After September 22, 2025, the risk of accidental underpayment doubled. GST 2.0 moved over 200 product categories between slabs. Sellers who haven't verified their rates since the changeover are likely filing at the wrong rate right now.
The Four Most Common Causes — in Order of Frequency
1. Wrong GST Rate After GST 2.0
This is the most common cause of underpayment in Q3 and Q4 FY 2025-26. The 12% slab was abolished on September 22, 2025. Products in that slab moved either down to 5% or up to 18%.
Sellers whose products moved up to 18% but who kept filing at 12% are underpaying by 6 percentage points on every sale. On ₹5L/month in turnover, that's ₹30,000/month in underpaid GST — ₹90,000 over a quarter — growing with 18% annual interest from the original due date.
The fix: verify your HSN code against the GST 2.0 rate schedule and amend the affected GSTR-1 filings immediately.
See the complete GST 2.0 rate table by product category →
2. Claiming ITC That Doesn't Appear in GSTR-2B
Your Input Tax Credit can only be claimed in GSTR-3B for invoices that appear in your auto-generated GSTR-2B. If your supplier filed their GSTR-1 late — or didn't file at all — that invoice won't appear in your GSTR-2B, and any ITC you claimed on it is legally invalid.
The GST department runs automated matching between what you claimed in GSTR-3B and what's in your GSTR-2B. Any excess claim shows up as a liability — payable with interest.
Ravi supplies packaging material to 40 sellers. He consistently files his GSTR-1 two weeks late. Every one of his buyers who claims ITC in the month of purchase is claiming credit that doesn't exist yet in their GSTR-2B. The reconciliation mismatch hits each of them three months later.
The fix: only claim ITC in the month it appears in your GSTR-2B. Never claim based on the physical invoice date if the supplier hasn't filed yet.
3. Missing TCS Credit from Marketplace Platforms
Amazon, Flipkart, and Meesho deduct TCS (Tax Collected at Source) at 1% of net taxable value on every seller payout, under Section 52 of the CGST Act. This credit appears in your GSTR-2B and must be claimed in Table 8 of your GSTR-3B to offset your liability.
Note: this is not a GST rate charged to customers — it's a source deduction on your seller payout. Confusing the two is a genuine and common mistake. E-commerce platforms collect GST from customers at the applicable product rate (5%, 18%, etc.) and separately deduct 1% TCS from your settlement before paying you.
Sellers who don't claim TCS credit are overpaying their net GST liability every month. That's not underpayment — but it's missed money. The inverse: sellers who claim TCS credit they haven't actually accrued are underpaying.
The fix: download your TCS certificate from each marketplace portal monthly (Amazon Seller Central → Reports → Tax Reports → TCS Certificate) and match the figure against your GSTR-2B before filing GSTR-3B.
4. Treating B2B Inter-State Sales Incorrectly
When you sell to a GST-registered business buyer in another state, the supply is IGST (Integrated GST). When you sell to an unregistered buyer or within the same state, it's CGST + SGST.
Filing CGST + SGST on an inter-state B2B sale — or vice versa — creates an IGST shortfall at the state level even if the total tax amount is correct. The department treats it as underpayment of IGST with interest, not as an offset.
The fix: check the billing address in every B2B invoice. If your state and the buyer's state are different, use IGST. Same state: CGST + SGST. Most GST-compliant invoicing software handles this automatically — manually built spreadsheets often don't.
What Underpayment Actually Costs
The GST Act levies interest on underpaid tax at 18% per annum from the original due date. This is not a flat penalty — it compounds daily from when the payment was due.
On ₹1,00,000 in underpaid GST over 6 months: Interest = ₹1,00,000 × 18% × (180/365) = ₹8,876
In addition to interest, deliberate underpayment or fraud attracts a penalty of 100% of the tax amount under Section 74 of the CGST Act. For inadvertent errors caught and self-corrected before a notice, the penalty is typically waived — which is why acting fast matters more than hoping the system doesn't notice.
The Early Warning Signs — Check These Monthly
Before every GSTR-3B filing, run this five-minute check:
- GSTR-2B vs purchase register: Does your claimed ITC match exactly what's in GSTR-2B? Any positive difference = ITC you can't claim yet
- GST rate per product: Has any product's rate changed since your last verified check? Post-GST 2.0, this applies to every product that was in the 12% slab
- TCS credit claimed: Does the TCS credit in your GSTR-3B Table 8 match the TCS certificate from each marketplace?
- IGST vs CGST/SGST split: Do your inter-state B2B invoices use IGST?
- Nil return check: If you had zero sales in a month, did you still file a nil GSTR-1 and nil GSTR-3B? Missing a nil return costs ₹20/day in late fees — small, but it adds up and stays on your compliance record
What to Do If You've Already Underpaid
Step 1 — Quantify the gap. Compare your GSTR-3B filed amounts against what should have been filed. The difference is your underpaid liability.
Step 2 — Pay immediately. GST interest runs from the due date. Every additional day of delay increases the interest. Pay via DRC-03 (voluntary payment challan) before any notice is issued — it signals voluntary correction and typically avoids penalties.
Step 3 — Amend the GSTR-1. If the underpayment stems from a wrong rate or missing invoice, file an amendment in your current GSTR-1. Amendments can be made up to the October return for any month in the same financial year.
Step 4 — Respond to notices promptly. If a GST department notice has already arrived (typically as a GSTR-3A for non-filing or a DRC-01 for demand), respond within the specified time — usually 30 days. Ignoring it escalates the notice to a demand order with penalties.
If you're dealing with a notice or quantifying backdated underpayment across multiple months, this is not the moment for DIY. Our CA partners handle notice responses and voluntary corrections regularly — the earlier you act, the better the outcome.
Check if your GSTR-2B reconciliation is clean → Verify your GST rates post-GST 2.0 → Calculate your late fee and interest exposure →