Section 74A of the CGST Act, introduced by the Finance (No. 2) Act, 2024, replaces the dual-track demand framework of Section 73 (non-fraud) and Section 74 (fraud) with a single unified provision. But the transition is not clean — the old sections continue to apply for demands relating to FY 2017-18 through FY 2023-24, while Section 74A governs FY 2024-25 onwards.
Understanding which section applies to your case is the first question. The limitation period, penalty exposure, and defence strategy differ materially across all three.
The Three-Way Comparison
| Dimension | Section 73 | Section 74 | Section 74A |
|---|---|---|---|
| Applicability Period | FY 2017-18 to FY 2023-24 | FY 2017-18 to FY 2023-24 | FY 2024-25 onwards |
| Trigger | Tax not paid, short paid, erroneously refunded, or ITC wrongly availed — NOT involving fraud/suppression | Tax not paid etc. by reason of fraud, wilful misstatement, or suppression of facts | Unified trigger — covers both fraud and non-fraud cases in a single section |
| Notice Period | 3 years from the due date of annual return | 5 years from the due date of annual return | 42 months from the due date of annual return (same for fraud and non-fraud) |
| Order Deadline | Within 3 years from the due date of annual return (combined with notice period) | Within 5 years from the due date of annual return (combined with notice period) | Within 12 months from the date of the notice (extendable by up to 6 months) |
| Penalty (Full) | 10% of tax or INR 10,000 (whichever is higher) | 100% of tax (equal to the tax amount) | 10% for non-fraud; 100% for fraud (graduated based on culpability) |
| Reduced Penalty (before SCN) | Nil if tax + interest paid before SCN | 15% if tax + interest paid before SCN; 25% if paid within 30 days of SCN; 50% if paid within 30 days of order | Reduced penalty available for payment before and after SCN with graduated timeline |
| Interest | 18% per annum under Section 50 | 18% per annum under Section 50 (the rate does not change for fraud cases) | 18% per annum under Section 50 for both fraud and non-fraud cases |
| Burden of Proof | On the department to prove non-payment | On the department to prove fraud/suppression/wilful misstatement | On the department; fraud determination is within the same proceeding |
| Appeal Pre-Deposit | 10% of disputed tax (First Appeal, cap INR 20 crore each CGST/SGST); further 10% (Tribunal, cap INR 20 crore each) | 10% of disputed tax (First Appeal, cap INR 20 crore each CGST/SGST); further 10% (Tribunal, cap INR 20 crore each) | Same pre-deposit framework applies |
The Transition Rule
The applicability determination is based on the financial year to which the demand relates, not the date the SCN is issued. A demand notice issued in 2026 for short payment in FY 2022-23 will be governed by Section 73 or 74 (not 74A). A demand for FY 2024-25 onwards will be governed by Section 74A regardless of when the notice is issued.
This transition creates a period where both frameworks operate simultaneously. For businesses with multi-year audit exposures, different sections may apply to different years within the same audit cycle.
Strategic Implications
The shift to Section 74A changes the defence calculus. Under the old framework, the classification of a case as Section 73 or Section 74 was itself a battleground — the department would allege fraud to access the 5-year limitation and 100% penalty, while the taxpayer would argue non-fraud to limit exposure to 3 years and 10% penalty.
Under Section 74A, the fraud/non-fraud distinction still matters for penalty, but it operates within a single proceeding. The notice period is 42 months from the annual return due date regardless of fraud, and the order must follow within 12 months of the notice (extendable by 6 months). The fraud determination is made within the order itself, not at the SCN stage. This changes the timing and nature of the defence.
Related Reading
Frequently Asked Questions
What is the difference between Section 73 and Section 74?
Section 73 applies to cases not involving fraud, suppression, or wilful misstatement, with a 3-year limitation and 10% penalty if paid within 30 days. Section 74 applies to fraud/suppression cases with a 5-year limitation and 100% penalty (reducible to 15% if tax and interest are paid before the SCN, 25% if paid within 30 days of the SCN, and 50% if paid within 30 days of the order). Section 74A replaces both for FY 2024-25 onwards.
When does Section 74A apply?
Section 74A applies to all GST demand proceedings for financial year 2024-25 onwards, introduced by the Finance (No. 2) Act, 2024. It creates a unified framework replacing the separate Section 73 and 74 tracks. Sections 73 and 74 continue to apply for demands relating to FY 2017-18 through FY 2023-24.
What is the limitation period under Section 74A?
Under Section 74A, the show cause notice must be issued within 42 months from the due date for furnishing the annual return for the relevant financial year — the same period applies whether or not fraud is alleged. The order must be passed within 12 months of the date of the notice, extendable by up to 6 months. This replaces the split 3-year (Section 73) and 5-year (Section 74) limitation periods.
How does the penalty structure differ under 74A?
Section 74A introduces a graduated penalty: 10% penalty in non-fraud cases (similar to old Section 73) and a higher penalty in fraud cases equivalent to the tax amount (100%). The early payment incentive is preserved — reduced penalties apply if tax and interest are paid within specified timelines.
GST Demand Received?
The first question is which section applies. We assess the demand, the limitation position, and the penalty exposure before recommending the response strategy.
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