All About Anti-Profiteering Clause in GST

Last Update Date : July 22, 2019
Estimated Read Time: 4 min

anti-profiteering clause in GST

The anti-profiteering clause is a measure by the government to monitor the unfair pricing strategies of businesses. This is because some companies seem to be taking undue advantage of the changing GST rates.

Read this guide by H&R Block to know everything about anti-profiteering in GST and how it can affect your business.

What is Anti-Profiteering Clause in GST?

While profits are excess of income over expenses, profiteering is making unreasonable profits through malpractices. To stop businesses from engaging in such illegal practices, the government, through the GST Council, has incorporated the anti-profiteering clause.

What Are the Anti-Profiteering Rules Under GST?

Section 171 of CGST Act, 2017 provides anti-profiteering rules according to which the benefits arising from:

  1. Reduction of the tax rate of any goods or services; and
  2. Input tax credit; should be passed on to consumers.

It means that buyers should get the benefit of a commensurate reduction in prices i.e. in proportion to GST rate reductions.

1. Reduction of the tax rate of any goods or services

Suppose you run a restaurant. The tax rate on food has been reduced from 20.5% to approximately 18%. This reduction in rate should lead to a reduction in the prices of the food your restaurant provides. Thus an item costing Rs 100 and initially sold at Rs 120.5 should now be sold at Rs 118.

Similarly, when the tax on raw materials reduces, the final selling price should reduce as well. If this benefit of reduced prices does not pass on to your consumers, it leads to profiteering.

2. Input Tax Credit

Input tax credit means reducing the tax to be paid on the output or final product. The tax already paid on inputs is reduced and only the balance tax on the output is payable.

In the restaurant example above, when you purchased raw materials (input) to make food, you paid tax on it. When the final product will be sold, you will charge a tax to the consumer. The tax paid by you should be adjusted with tax collected, after which you have to deposit the balance tax liability with the government.

Suppose you collected Rs 150 as tax (on the food) from consumers. The input tax paid by you (on raw materials) is Rs 100. You can claim input tax credit of Rs 100 and will have to deposit Rs 50 as output tax.

Application of these rules leads to a reduction in the final price of the goods or service. You should pass this benefit to your customers by the means of offers, discounts or a reduction in the price.

What Are the Effects of Non-Compliance?

In case of non-compliance of the anti-profiteering rules, the National Anti-profiteering Authority (NAA) can order the defaulting company/ seller to:

1. Return of benefit amount

If you have not passed on the benefit in the form of reduced prices, you have to return the benefit amount charged to the buyer. Also, an 18% interest is calculated on the benefit amount from the date when the services or goods were sold until the time the benefit amount is returned to the buyer.

If the buyer does not claim this benefit or cannot be identified, then the amount has to be deposited with the fund referred to in the CGST Act under Section 57.

2. Pay a penalty

The NAA may charge you a maximum of Rs 25,000 as penalty prescribed under Section 125 of the CGST and SGST Act, 2017.

3. Cancellation of registration:

Your company’s GST registration may be cancelled under Rule 133(3) of CGST and SGST Act, 2017.

Scrutiny and Investigation

A three-tier system is in place that looks over profiteering companies. It includes:

  • Standing Committee
  • State Level Screening Committee
  • Director General of Safeguards

Working along with NAA, this system scrutinizes anti-profiteering applications and carries out an investigation if the need arises.

Effects of the Anti-Profiteering Clause on Industry

The anti-profiteering clause has been formed to protect consumers. It has also brought in challenges for businesses such as:

  • You need to revise the prices of your goods/ services every time there is a change in the GST rates.
  • If not, you need to give the benefit of input tax credit and repay the excess amount to the consumers.
  • Your company may have to provide documented proofs even in case of fair pricing as part of scrutiny.
  • With no particular guidelines regarding anti-profiteering, businesses find it difficult to comply with the rules.
  • Anti-profiteering investigation has led big companies into lawsuits and has affected the company profits to a substantial extent.

People Also Ask

Q. Does the National Anti-profiteering Authority (NAA) have a sunset clause?

A. Yes, NAA has a sunset clause that was supposed to end on 30 November 2019. The date has been extended by two years to 30 November 2021.

Q. Does my company have to pay a penalty for profiteering?

A. Yes, your company will have to pay a penalty of up to 10% on the profiteered amount if it is not deposited within 30 days. Earlier business had to pay flat rate of Rs 25,000 as penalty.

With the ever-changing scenario in the GST regime, being GST compliant will be an issue of utmost importance. Keeping track of these changes will help your business to function without a hitch.


How Can H&R Block Help You?

Many companies find it challenging to focus on their business while trying to be GST compliant. But we’ve got you covered. Our team of in-house GST experts can help you meet all the GST compliance requirements like new GST laws, procedures, filings, etc., so that you can tend to your core business.

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CA Ankita Mathur
CA Ankita Mathur
Ankita, a Big 4 alumna, is a tax expert at H&R Block (India) with vast experience in managing GST-related business services. An avid traveller, Ankita is a regular contributor to the CAclubindia and loves helping people understand about GST and helping companies be GST compliant.