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CBIC May Soon Set Monetary Limit for GST Demand Notices

September 23, 2025

Central Board of Indirect Taxes and Customs (CBIC) member Shashank Priya said that the board will soon issue an instruction to the field formations in this regard. When we finalise our instruction, we will ensure some sort of mentoring by senior officers so that notices are not issued on flimsy ground, he said.

“The messaging that we need to give is, we are not interested in demand just getting confirmed… We are working on setting up a monetary limit for demand notices,” Shashank Priya said addressing an Assocham event here.

Does that means no Demands below the threshold ?

No, it does not mean absolutely no demands below the threshold. The proposed monetary threshold is intended to change the process for handling minor discrepancies, not to eliminate the tax liability itself.

Here’s how it’s likely to work:

No Formal Demand Notices: For issues below the monetary threshold (e.g., ₹1-5 lakh), the tax department will likely stop issuing formal demand notices under Section 73 or 74 of the CGST Act. This is the core benefit for taxpayers, as it prevents the initiation of burdensome legal proceedings.
Informal Communication: Instead of a formal notice, the GST Network (GSTN) may send an automated intimation or alert on the taxpayer’s portal. This would flag the discrepancy and give the taxpayer an opportunity to voluntarily pay the due tax and interest.
Emphasis on Voluntary Compliance: The new system encourages taxpayers to rectify minor errors on their own. They can pay the tax and interest through a voluntary payment form (DRC-03) and avoid any penalty, especially if there’s no evidence of fraud.
Fraud Cases: The monetary threshold would likely not apply to cases of proven fraud, willful misstatement, or suppression of facts to evade tax. These serious offenses will still be pursued, regardless of the amount.

In essence, the new system is a shift from an adversarial approach to a more facilitative one for low-value cases. The tax is still due, but the method of collection becomes less litigious and more focused on voluntary compliance.

What Limits Can Be Proposed?

While the official limits are yet to be announced, they will likely be guided by existing thresholds for GST appeals. The current appeal thresholds are:

Appellate Authority: ₹20 lakh
GST Appellate Tribunal: ₹1 crore
High Courts and Supreme Court: ₹2 crore

Given that the goal is to prevent disputes from escalating, the monetary threshold for issuing the initial demand notice could be set at a lower value, such as ₹1 lakh to ₹5 lakh. This would ensure that only cases with significant financial implications proceed to the formal notice stage, while minor discrepancies can be addressed through other, less burdensome mechanisms. For cases involving fraudulent activity or willful misstatement, a lower or even zero threshold might be considered to ensure that serious tax evasion is not overlooked.

This tiered approach would allow the tax authorities to prioritize their resources on high-value cases, ensuring that enforcement efforts are proportionate to the potential revenue at stake.

How Can the System Be Implemented?

Implementing this new system will require a multi-pronged approach that combines policy changes with technological and procedural enhancements.

1. A Phased, Data-Driven Rollout

The CBIC should consider a phased rollout, starting with a pilot program in specific zones or for particular industries. This would allow the government to collect data on the number of demand notices issued, the value of the disputes, and the impact on compliance. A data-driven approach would help in fine-tuning the final thresholds and implementation strategy. The system can be integrated with the existing GST Network (GSTN) to flag discrepancies based on the new limits.

2. Automated Screening and Risk-Based Analysis

Leveraging the power of the GSTN, the system can be automated to screen transactions and returns. Instead of manually scrutinizing every small mismatch, the system could automatically identify discrepancies below the proposed monetary threshold. These minor issues could be communicated to the taxpayer through an online intimation or a simple alert on the GST portal, prompting them to rectify the error or provide an explanation.

A robust risk-based analysis module could be developed using Artificial Intelligence (AI) and Machine Learning (ML) to identify patterns of potential fraud, regardless of the monetary value. This ensures that while minor errors are not litigated, systematic attempts at tax evasion are still detected and acted upon.

3. Senior Officer Mentoring and Procedural Safeguards

A key component of this initiative, as highlighted by CBIC official Shashank Priya, is the provision for mentoring by senior officers. This is crucial to prevent the issuance of notices on “flimsy grounds.” The implementation plan should include:

Clear Guidelines: Issuing unambiguous instructions to field formations about the new monetary limits and the process for handling cases below the threshold.
Mandatory Review: Requiring a mandatory review by a senior officer for any notice to be issued, especially for cases that are near the threshold.
Training and Capacity Building: Providing training to tax officials to shift the focus from a “demand-confirmation” mindset to one of “fair adjudication” and facilitation.

4. Encouraging Voluntary Compliance

The new system should be accompanied by measures that encourage voluntary compliance. For instance, taxpayers who proactively rectify minor discrepancies identified by the automated system could be offered a simplified process for payment, with reduced or no penalties. This would further reduce the need for formal notices and foster a more collaborative relationship between taxpayers and the tax department.

By implementing a well-thought-out system with clear thresholds and procedural safeguards, the CBIC can significantly reduce the burden of litigation, improve the ease of doing business, and ultimately strengthen the GST framework. This move is not just about numbers; it’s about building trust and creating a tax environment that is fair, efficient, and forward-looking.