Choose the applicable legal branch before calculating
CGST Act section 122(2) concerns the stated registered-person supply/tax and credit defaults. Clause (a) covers reasons other than fraud, wilful misstatement or suppression to evade tax; clause (b) addresses those specified reasons. A tax difference alone does not supply the factual finding that selects clause (b). This central-provision computation guide was checked on 29 October 2026 and isolates the penalty amount where section 122(2) is actually applicable. ICAI April 2026 bare law: CGST Act sections 122(2) and 75(13).
The non-fraud formula has a minimum
Clause (a) uses ₹10,000 or 10% of tax due, whichever is higher. The comparison is against tax due, not gross invoice value, annual turnover or a ledger including unrelated interest. At tax due of ₹1 lakh the percentage and floor coincide. Below that base the floor can determine the result; above it the percentage can determine the result. Do not describe the formula as a discretionary maximum or automatically replace it with the residual section 125 ceiling. ICAI April 2026 bare law: CGST Act sections 122(2) and 75(13).
The fraud branch uses a different comparator
Clause (b) compares ₹10,000 with tax due itself, taking the higher amount. It does not use clause (a)’s 10% merely because both provisions appear in the same subsection. Preserve the allegation, evidence and finding for fraud, wilful misstatement or suppression to evade tax. The examples compare stipulated branches to illustrate their financial effect; they do not decide disputed conduct from the size of the arithmetic difference. ICAI April 2026 bare law: CGST Act sections 122(2) and 75(13).
Check the demand proceedings and period
Do not stack this calculator onto every section 73, 74 or 74A demand. Section 75(13) says that when penalty is imposed under one of those sections, no penalty for the same act or omission may be imposed on the same person under another provision of the Act. Identify the relevant demand route, period and any settlement or penalty conclusion under that route before deciding whether a separate section 122 penalty exists. Sections 73 and 74 address periods up to FY 2023–24; section 74A addresses FY 2024–25 onwards. A spreadsheet should expose a duplication risk rather than silently add two penalties. ICAI April 2026 bare law: CGST Act sections 122(2) and 75(13).
Keep distinct persons, acts and monetary heads separate
The section 75(13) test uses the same person and same act or omission. Do not generalise it into cancellation of every penalty anywhere in a group. Conversely, a second file number does not necessarily prove a different act. Maintain a person/event matrix, the actual provision invoked, independently determined tax base, proposed versus final status and credits. Tax, interest and penalty are separate heads; a payment against tax does not automatically discharge a penalty. ICAI April 2026 bare law: CGST Act sections 122(2) and 75(13).
Use one reproducible working
Each example stipulates the relevant central tax base and legal branch, excludes separate State/UT/IGST analysis and does not decide the proper assessment route. Where a parallel tax enactment applies, establish its own amount and legal basis rather than blindly doubling this illustration. Preserve the final order and any verified credits before posting a remaining penalty balance. These calculations do not override an applicable statutory conclusion of proceedings or establish that a penalty must arise on every voluntary correction. ICAI April 2026 bare law: CGST Act sections 122(2) and 75(13).
Applicable primary references
ICAI April 2026 bare law: CGST Act sections 122(2) and 75(13)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Non-fraud floor binds
Assume section 122(2)(a) independently applies and tax due is ₹60,000. Ten percent is ₹6,000, so the higher ₹10,000 determines the modelled penalty. Tax due plus this penalty is ₹70,000 before any separately supported interest.
Illustrative example 2: Non-fraud percentage exceeds floor
For a stipulated clause (a) tax base ₹3 lakh, 10% is ₹30,000, exceeding ₹10,000. The penalty working is ₹30,000, not ₹10,000 and not the entire ₹3 lakh tax base.
Illustrative example 3: Boundary comparison
At a clause (a) tax base ₹1 lakh, 10% equals ₹10,000. If the verified base instead is ₹1.20 lakh, the percentage becomes ₹12,000, increasing the penalty by ₹2,000. This arithmetic threshold does not change the legal conduct classification.
Illustrative example 4: Compare supported branches
For tax due ₹2 lakh, clause (a) would produce max(₹10,000, ₹20,000) = ₹20,000. Clause (b), if its separate facts are established, produces max(₹10,000, ₹2 lakh) = ₹2 lakh. Difference ₹1.80 lakh is not evidence that fraud occurred.
Illustrative example 5: Same-act duplication
Assume a ₹50,000 penalty has actually been imposed under section 73 for a particular act relating to a period up to FY 2023–24 on the same person. A proposed separate ₹50,000 penalty under section 122 for that identical act would produce a draft total ₹1 lakh. Apply section 75(13)’s restriction: the additional same-act penalty is not imposed in this stipulated case, leaving ₹50,000, not a general waiver for other acts.
Illustrative example 6: Penalty balance after credited payment
An independently valid final section 122 penalty is ₹30,000. A verified ₹12,000 payment is credited specifically against it, leaving ₹18,000. A separate ₹3 lakh tax payment is not deducted again from the penalty balance merely because it appears in the same bank reconciliation.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the person and event | Build a specific act/omission record. |
| 2 | Confirm provision applicability | Do not use section 122(2) as a universal default calculator. |
| 3 | Select the supported branch | Document the reasons and findings supporting clause (a) or (b). |
| 4 | Reconcile tax due | Exclude unrelated interest, turnover and gross-value substitutes. |
| 5 | Calculate both comparators | Show the ₹10,000 floor and the proper tax-linked amount. |
| 6 | Review demand proceedings | Record section 73, 74 or 74A and the applicable period. |
| 7 | Test same-act duplication | Match the person, act and actually imposed penalty under section 75(13). |
| 8 | Separate other enactments | Establish State/UT/IGST amounts independently where relevant. |
| 9 | Map verified credits | Apply each payment to its actual monetary head once. |
| 10 | Close the final-order bridge | Distinguish proposed calculations from enforceable balances and available correction routes. |
Sixteen practitioner FAQs
1. Is every GST error a section 122(2) penalty?
No. Establish the applicable provision and proceeding.
2. What is clause (a)’s percentage?
Ten percent of the relevant tax due, subject to its ₹10,000 floor.
3. Is ₹10,000 a maximum?
No. The formula takes the higher amount.
4. Is turnover the percentage base?
No. The wording uses tax due.
5. Where do the clause (a) comparators coincide?
At tax due of ₹1 lakh.
6. Does clause (b) also use 10%?
No. It compares tax due with ₹10,000.
7. Does a large discrepancy prove fraud?
No. The legal factual classification must be supported.
8. Can section 125 replace this formula routinely?
Its residual scope must be respected; do not substitute it automatically.
9. Why inspect sections 73, 74 and 74A proceedings?
Their actual penalty and conclusion may affect a separate proposed penalty.
10. What does section 75(13) protect against?
Another penalty under the Act for the same act or omission on the same person where the stated demand-section penalty is imposed.
11. Does a different file number necessarily mean another act?
No. Compare the underlying facts.
12. Does that rule erase every group-company penalty?
No. Person and act must be matched.
13. Can the central example simply be doubled for every case?
No. Establish each applicable enactment and tax head.
14. Does a tax payment automatically pay the penalty?
No. Reconcile its actual credit.
15. Are these figures final demands?
They are stipulated computation examples, not adjudication of facts.
16. What should a reviewer sign off?
Provision, branch, tax base, duplication test and verified final balance.
Conclusion
Section 122(2) compares a ₹10,000 floor with different tax-linked amounts for its non-fraud and fraud branches. Establish the provision and facts first, then check the same-person/same-act restriction in section 75(13).