What is a GST DRC-01 notice and how do I reply?

By the India Law Simplified editorial team · Verified against the bare Acts & official portals · Updated 2026-08-18 · ~8 min read

⚡ Quick answer

A DRC-01 is a show-cause-cum-demand notice the GST department issues — under Section 73 (where there's no fraud) or Section 74 (where fraud or wilful suppression is alleged) of the CGST Act — when it believes you underpaid GST or claimed input tax credit you weren't entitled to. You reply in Form DRC-06 within the time stated (usually 30 days), attaching your reconciliation and explanation; or, if the demand is correct, you pay it via DRC-03 to close the matter.

Draft a free DRC-01 reply →

Getting a GST DRC-01 notice can be alarming, but it is a routine part of GST administration and is manageable if you act in time. It's the department's formal way of saying 'we think you owe more tax — explain or pay.' What matters is understanding why you got it, replying correctly in the right form, and never letting the deadline pass. This guide walks you through exactly that, in plain language.

1What a DRC-01 is

DRC-01 is a combined show-cause notice and demand. It tells you the tax period, the amount the department thinks is short, the reason, and the legal section it's issued under. It gives you a chance to respond before any demand is confirmed.

It comes under one of two sections — and which one matters a lot for the penalty:

Section 73 — for genuine mistakes, no fraud: lower penalty (often nil or 10% if you pay promptly)
Section 74 — where fraud or wilful suppression is alleged: much higher penalty (up to 100% of the tax)

2Why you got it

Most DRC-01 notices are triggered by automated mismatches in your returns. The common reasons:

A mismatch between your GSTR-1 (sales) and GSTR-3B (summary/tax paid)
ITC claimed in GSTR-3B that's higher than what appears in your GSTR-2B
Tax declared but not actually paid, or short-paid
Differences between your GST turnover and the income shown in your income-tax return

3How to reply — step by step

Don't panic and don't ignore it. Work through it methodically:

Read the notice carefully — note the section (73 or 74), the amount, the period and the deadline.
Reconcile the demand against your own records — GSTR-1, GSTR-3B, GSTR-2B and your purchase/sales registers.
If the demand is wrong, file Form DRC-06 on the GST portal with your explanation and supporting documents before the deadline.
If the demand is correct (fully or partly), pay that part via Form DRC-03 — paying promptly under Section 73 can reduce or remove the penalty.

✅ TipEven if you need more time or only partly agree, file a DRC-06 reply within the deadline. A timely, reasoned reply protects your right to be heard; silence leads to an automatic adverse order.

4What happens if you ignore it

If you don't respond, the officer can pass an ex-parte order in Form DRC-07, confirming the entire tax, interest and penalty without your side being heard. Recovery can then follow — including attachment of your bank account. After an adverse order, your remedy is an appeal, which costs time and a pre-deposit. Replying on time is far cheaper.

💡 ExampleA small trader got a DRC-01 for ₹80,000, claiming an ITC mismatch. On reconciling, he found the ITC was genuine but one supplier had filed late, so it appeared in a later GSTR-2B. He filed a DRC-06 explaining this with screenshots of the GSTR-2B — and the demand was dropped. Had he ignored it, a DRC-07 order for ₹80,000 plus penalty would have stood.

5Section 74A changed the timeline from FY 2024-25

Most guidance still describes two separate demand provisions: section 73 for ordinary cases with a three-year limitation, and section 74 for fraud and suppression with five years. That description is now only partly current.

For financial years up to 2023-24, sections 73 and 74 continue to apply. From FY 2024-25 onwards both are replaced by a single section 74A, which sets one limitation period of 42 months from the due date of the annual return for issuing the show-cause notice, whichever category the case falls into.

The order must then be passed within 12 months of the notice, extendable by up to six months by a Joint Commissioner or above.

⚠️ ImportantCheck which financial year your notice concerns before relying on any article about time limits — the answer changed, and a great deal of what is published online predates it.

6Paying before the notice: Form DRC-03

If you accept that tax is short-paid, paying voluntarily through Form DRC-03 before the show-cause notice is issued materially reduces what you end up paying.

The penalty consequences of paying at the pre-notice stage, after the notice, or only after the order are quite different, and they worsen at each step. Where the liability is genuinely owed, the cheapest moment to pay is always the earliest one.

✅ TipPay under the correct head and period in DRC-03. A payment made against the wrong period does not close the demand it was meant to settle.

7If the order goes against you: the appeal route

An order in Form DRC-07 is not the end. An appeal lies to the Appellate Authority in Form APL-01, and it must be filed within three months of the order being communicated, extendable by a further month on sufficient cause.

Filing the appeal requires a pre-deposit of 10% of the disputed tax. Once that is paid, recovery of the balance is stayed while the appeal is pending — which is often the practical reason to appeal even where the merits are uncertain.

8DRC-01A: the stage before the notice

A DRC-01 is often not the first contact. Before issuing the show-cause notice the officer may communicate the proposed liability in Part A of Form DRC-01A, inviting you to accept it or explain.

This stage matters more than it appears. Replying in Part B of DRC-01A with a clear explanation and supporting reconciliation can close the matter without a formal notice being issued at all. Ignoring it produces the DRC-01, at which point the process becomes adjudication with its own timelines.

⚠️ ImportantTreat a DRC-01A as the cheapest opportunity you will get, not as a draft you can wait out.

Key takeaways

A DRC-01 is a show-cause notice, not a final demand.
For FY 2024-25 onwards section 74A replaces 73 and 74, with a single 42-month limitation.
A DRC-01A may come first — replying there can close the matter without a notice.
Paying voluntarily in DRC-03 before the notice minimises the penalty.
An adverse order can be appealed in APL-01 within three months, on a 10% pre-deposit.

Frequently asked questions

What happens if I ignore a DRC-01 notice?

The officer can pass an ex-parte demand order (DRC-07) confirming the full tax, interest and penalty without hearing you, followed by recovery action. Always file a DRC-06 reply within the deadline, even if only to seek time or clarify.

What is the difference between DRC-01, DRC-03, DRC-06 and DRC-07?

DRC-01 is the show-cause/demand notice; DRC-06 is your reply to it; DRC-03 is the form used to pay tax voluntarily or against the demand; DRC-07 is the final demand order the officer issues after considering (or in the absence of) your reply.

Can I get the penalty reduced on a DRC-01?

Yes, often. Under Section 73 (no fraud), if you pay the tax and interest before the notice or within 30 days, the penalty can be nil or minimal. Under Section 74 the relief is smaller, but early payment still reduces the penalty.

How long do I get to reply to a DRC-01?

The notice states the deadline, typically 30 days. If you need more time, request it through a DRC-06 reply before the deadline rather than letting it lapse.

Do sections 73 and 74 still apply to my notice?

It depends on the period. For financial years up to 2023-24 they do. From FY 2024-25 onwards both are replaced by section 74A, which sets a single limitation of 42 months from the annual return due date for issuing the notice, with the order due within 12 months, extendable by six.

What is a DRC-01A and should I reply to it?

It is the pre-notice intimation of a proposed liability. Replying in Part B with a clear explanation and reconciliation can close the matter before any show-cause notice is issued. It is the cheapest stage at which to resolve a demand, and ignoring it simply produces the DRC-01.

What does it cost to appeal an adverse order?

An appeal is filed in Form APL-01 within three months of the order, extendable by one month for sufficient cause, and requires a pre-deposit of 10% of the disputed tax. Once paid, recovery of the balance is stayed while the appeal is pending.

Can the department recover the money while I am replying?

Not during the reply window. Recovery follows an order in Form DRC-07, not the show-cause notice itself, and even then filing an appeal in APL-01 with the 10% pre-deposit stays recovery of the balance while the appeal is pending. Missing the reply deadline is what accelerates matters, because the order can then be passed on the material already on record.