Avoid These 6 GST Mistakes or Your Bank Account May Be Frozen: Complete Guide to Rules and Remedies

6 Costly GST Mistakes That Can Get Your Bank Account Frozen: Know the Rules and How to Unfreeze It

The Goods and Services Tax (GST) Department has the legal authority to freeze the bank account of any GST-registered taxpayer if it detects tax evasion, fake Input Tax Credit (ITC) claims, or major discrepancies during investigations. This power is exercised to secure government revenue and prevent misuse of funds while a case is under scrutiny.

Under Rule 159 of the CGST Rules, officers can order a provisional attachment of a taxpayer’s bank account. If this happens, businesses can face severe disruptions, especially if they do not understand the process of unfreezing the account or their legal rights.

Here is a detailed, structured guide on when the GST Department can freeze your bank account, which activities trigger the action, and what steps you can take to restore access.

Why the GST Department Freezes Bank Accounts

The GST law grants commissioners the authority to provisionally attach any property—including bank accounts—during investigations involving serious violations. This measure is used only in high-risk cases. Common reasons include:

1. Fake Input Tax Credit (ITC) Claims

Claiming ITC without actual purchase, or based on fraudulent invoices, is one of the biggest triggers for account freezing.

2. Issuing Invoices Without Supplying Goods or Services

Raising invoices without real transactions to pass on fraudulently claimed ITC can immediately attract investigation and attachment.

3. Failure to Deposit GST Collected from Customers

If the taxpayer collects GST but does not deposit it with the government, the department may freeze accounts to secure outstanding revenue.

4. Detection of Shell Companies or Bogus Firms

If an entity is found operating fake businesses or generating non-genuine transactions, the account can be provisionally attached.

5. Major Irregularities Found During Departmental Audits

Large mismatches between GSTR-1 and GSTR-3B, unreported sales, or suspicious spikes in turnover may trigger action.

6. Non-Cooperation During an Ongoing Investigation

Refusal to respond to notices, ignoring summons, or withholding records can also lead to bank account attachment.

How Will You Know If Your Account Has Been Frozen?

A taxpayer is generally informed about account freezing through the following channels:

• An email or call from the bank

• A notice on the GST portal in Form GST DRC-22

• Direct communication from the GST investigation team

Once the account is frozen, the taxpayer cannot withdraw funds until the issue is resolved or the attachment order is lifted.

How to Get Your Bank Account Unfrozen

If your bank account is attached, you must act quickly. The law provides a clear procedure for objections and appeals.

1. File an Objection Within 7 Days (Form DRC-22A)

Submit your objection against the attachment order along with documents proving that revenue interests are not at risk.

2. Provide Evidence or Bank Guarantee

If the Commissioner is satisfied that government revenue is secure or you offer a bank guarantee, the account may be released.

3. Submit Supporting Documents to the Commissioner’s Office

Invoices, GST returns, bank statements, or audit records may be required to justify your claim.

4. Approach the High Court if the Department Refuses Relief

High Courts across the country have, in many cases, struck down arbitrary or unjustified bank account attachments.

What If the GST Department Still Does Not Unfreeze Your Account?

If the department does not respond or denies your request, you may:

• File a fresh representation

• Escalate the matter to senior GST officials

• Approach the High Court under writ jurisdiction for immediate relief

Legal Basis for Freezing Bank Accounts

The authority to freeze bank accounts comes from:

Section 83 of the Central GST Act, 2017

Allows provisional attachment of any property—including bank accounts—during the pendency of proceedings to protect revenue.

Rule 159 of the Central GST Rules, 2017

Defines the procedure for attachment, taxpayer options, and conditions under which the order can be withdrawn.

Conclusion

A frozen bank account can severely affect business operations, payroll, vendor payments, and day-to-day transactions. However, taxpayers should know that the GST Department uses this power only in serious cases of fraud, evasion, or non-compliance. Understanding the rules, responding promptly to notices, and maintaining clean GST records can help avoid such situations altogether.

If an attachment does occur, the law provides clear remedies—including objections, guarantees, and judicial intervention—to ensure that genuine businesses are not unfairly penalized.