An Australian Communications and Media Authority investigation found the nation's largest telecommunications company had ignored a 2020 directive to comply with billing accuracy obligations.
That directive came after Telstra overcharged more than 10,000 people almost $2.5 million, with the ACMA investigation finding a further 11,600 people had suffered the same fate.
About 8000 customers were charged more than $1.2 million for Belong-branded broadband services after they had changed providers, while others were charged set-up fees that didn't apply.
Telstra paid back more than $1.73 million to customers, while ACMA stung the telco with a $506,160 fine.
Telstra, which self-reported the issue, blamed the overcharging on its internal system including a data transfer problem and old employee instructions.
ACMA chair Nerida O'Loughlin gave little credence to the excuses, saying its billing systems should be more sophisticated and compliant with industry-wide consumer protection rules.
"At a time when Australians are being very careful with their budgets, these errors are particularly concerning as they could have caused considerable strain and distress," she said.
Belong chief executive Jana Katakto noted refunds were issued before ACMA's infringement notice.
The errors were caused by data transfer issues between IT systems and also some work instructions being unclear or incorrectly applied.
"This is not the experience we want to be providing our customers, and Telstra has now improved our processes and systems to help stop this type of error from occurring again," Mr Katakto said.