Introduction

Businesses often discover tax short-payments, mistakes in returns, excess ITC claims, or omissions during self-audit or departmental communication. To avoid penalties, interest, and unnecessary notices, the GST portal provides a facility for voluntary payment through Form DRC-03.

Form DRC-03 is used to pay tax, interest, penalty, or any other liability voluntarily or in response to a notice before adjudication. This helps taxpayers remain compliant and prevents escalation of proceedings.

This guide by Bisways Consulting Group explains when DRC-03 should be filed, types of payments allowed, step-by-step filing, and common mistakes to avoid.

What Is Form DRC-03?

Form DRC-03 is an online challan used to make payments under:

• Voluntary payment (self-assessment)

• Audit

• Investigation

• Show Cause Notice (SCN) before adjudication

• Return short-payment correction

It allows taxpayers to pay their outstanding liability and close the matter without further departmental action.

When Should a Taxpayer File DRC-03?

1. Voluntary Payment Before Notice

When you identify:

• Under-reported sales

• Missed outward supplies

• Wrong ITC claim

• Excess ITC utilisation

• Interest short-payment

• Mistakes in earlier returns

2. During Audit or Departmental Verification

If discrepancies are identified during audit or verification, DRC-03 is filed to settle the liability.

3. Against Show Cause Notice (Before Adjudication)

If the taxpayer accepts the liability under Section 73 or 74, DRC-03 is used to make the payment and close proceedings.

4. Payment of Interest or Penalty

When interest or penalty arises due to delays or non-compliance.

5. For Annual Return Reconciliation

Differences noted while preparing GSTR-9 may require payment of additional tax through DRC-03.

Modes of Payment Allowed

DRC-03 allows payment through:

• Electronic Cash Ledger (mandatory for tax liability under SCN)

• Electronic Credit Ledger (allowed only for voluntary tax payment before SCN)

Step-by-Step Process to File Form DRC-03

Step 1: Log in to GST Portal

Go to: Services → User Services → My Applications → DRC-03.

Step 2: Choose Payment Reason

Select one:

• Voluntary payment

• Audit

• Investigation

• SCN prior to adjudication

Step 3: Select Section

• Section 73 – Non-fraud cases

• Section 74 – Fraud/suppression/wilful misstatement cases

Step 4: Enter Tax Period and Details

Provide:

• Tax head (CGST/SGST/IGST/Cess)

• Amount of tax, interest, or penalty

Step 5: Make Payment

Use the appropriate ledger:

• Cash Ledger

• Credit Ledger (only in permitted cases)

Step 6: Upload Supporting Documents

Attach computation sheet and working notes (optional but recommended).

Step 7: Preview and Submit

Verify all details and submit using DSC or EVC.

Step 8: Generate DRC-03 Acknowledgement

Save the ARN generated as proof of payment.

Interest and Penalty – Key Rules

• Interest is mandatory if tax is paid late.

• Rate: 18% per annum from due date until payment.

• Penalty depends on whether the case falls under Section 73 or 74.

Common Mistakes to Avoid

• Paying using credit ledger in SCN-related cases

• Wrong selection of section (73 vs 74)

• Missing period or incorrect tax head

• Multiple payments without checking liability

• Not keeping breakup/calculations for audit

A minor mistake in DRC-03 may lead to further queries or notices, so accuracy is essential.

Why DRC-03 Is Important

• Helps avoid litigation

• Settles liability at an early stage

• Maintains good compliance rating

• Reduces penalty exposure

• Smoothens GST audits

• Strengthens internal control and accuracy

Conclusion

Form DRC-03 is a powerful tool for taxpayers to rectify errors and voluntarily pay tax liabilities without facing strict departmental action. When used correctly, it ensures hassle-free compliance and avoids prolonged GST proceedings.

Bisways Consulting Group assists businesses with GST reconciliations, voluntary payments, SCN replies, audit assistance, and complete compliance management.