GST Bank Account Freeze Rules: Triggers & Solutions - India Briefing

Bank Account Freeze Under GST: Legal Remedies and Business Continuity Steps

The Goods and Services Tax (GST) has reshaped India’s indirect tax landscape by promoting greater simplicity, transparency, and consistency. However, the framework also introduced robust enforcement mechanisms, one of the most impactful being the provisional freezing of bank accounts. 

Understanding the rationale, scope, and process behind this authority is essential for effective compliance and risk management.

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India’s GST department has enforcement powers, including the authority to temporarily block bank accounts of registered taxpayers during investigations involving suspected tax evasion or fraudulent activity.

As per the law, the GST Commissioner has the power to provisionally attach a taxpayer’s assets, including bank accounts, during investigations relating to suspected tax evasion or fraud. This authority stems from Section 83 of the CGST Act and Rule 159 of the CGST Rules, 2017, allowing temporary restrictions on the use of property to safeguard revenue interests.

The GST Department may direct banks to provisionally attach (freeze) a taxpayer’s account when there are indicators of serious non-compliance or potential revenue risk. Such action is typically considered only during ongoing investigations and is meant to prevent loss of government dues.

Common triggers include:

1. Suspected fake input tax credit (ITC) claims
2. Issuing invoices without actual supply of goods or services
3. Collecting GST but failing to remit it to the government
4. Identification of shell companies or fictitious entities
5. Significant discrepancies detected during audits or anti-evasion proceedings
6. Non-cooperation or repeated non-response during departmental inquiries

These red flags usually arise during reviews conducted by jurisdictional GST authorities, the Directorate General of GST Intelligence (DGGI), or anti-evasion units.

Most taxpayers learn about the freeze either through their bank or when transactions start getting rejected. As per procedure, the department must upload the DRC-22 notice order on the GST portal, notify the authorized signatory via email, and send the same order to the bank, which is required to immediately restrict outward payments.

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Taxpayers have several options to seek relief in case their bank account has been frozen by the GST authorities.

Submit a detailed reply via the GST portal with supporting documents—such as reconciliations, invoices, or proof of tax deposits.
If the authority is satisfied, it will issue Form GST DRC-23, instructing the bank to lift the freeze.

Where full release is not immediately granted, taxpayers may propose:

• A bank guarantee
• An escrow arrangement
• Partial payment of the disputed amount

These safeguards can help secure partial or complete relief.

Within 7 days of the attachment order, taxpayers can submit objections, explaining why the attachment should be withdrawn. This can be done by filing Form GST DRC-22A. Evidence of cooperation, correction of errors, or willingness to provide security strengthens the case.

If the attachment is excessive, arbitrary, or severely disrupts business operations, taxpayers may file a writ petition. India’s High Courts have frequently intervened when authorities overstep, especially where proportionality is lacking.

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