Penalties Under the Income Tax Act

Penalties Under the Income Tax Act – The timely and regular paying of taxes and the filing of returns indicates that the government has public welfare funds at all times. In order to ensure that the taxpayer doesn’t really cheat on the payment of taxes or disclosure of details, there are many provisions laid down in the Act.

The penalty is a punishment levied on the taxpayer for just being non-compliant. The following are some of the most critical and basic penalties.

Penalties Under the Income Tax Act

Default in making payment of tax

The magnitude of the penalty to be assessed will be calculated by the Assessing Officer. The sum would never exceed the amount of tax in arrears.

Under-reporting of income

Where the income assessed/re-assessed reaches the income declared by the taxpayer or where the return has still not been submitted and the income crosses the scope of the simple exemption, a penalty of 50% of the tax owed mostly on income estimated should be imposed on the assessee. When under-reporting arises from inaccurate reporting of taxes, 200% of the tax is payable.

Failure to keep account books as well as other paperwork

The amount of penalty imposed is usually ₹25,000. In the event that the assessee is a citizen who has participated in an international transaction, the liability shall be 2% of the amount of the international/domestic transaction.

Penalty for false entry such as fake invoices

In the event that the income tax tax officer discovers that perhaps the accounting records given by the taxpayer in the include the following details.

  • Such as a bogus invoice or a fraudulent piece of documentary evidence, forged or falsified papers.
  • An invoice provided by any authority in connection of the delivery or reception of goods or services without real supply or receipt of goods or services.
  • An invoice for the provision or receipt of goods or services obtained from an inaccessible individual.
  • The exclusion of any entry that is applicable to the total income calculation.

The taxpayer may have to submit a penalty equivalent to the sum of such fraudulent or missing entries.

Undisclosed income

If the income estimated contains undisclosed income, a tax of 10% is due. That being said, no such levy would be payable if such income was mentioned in the return and the tax was collected by the end of the corresponding year in question.

Where the search was started on or after 1/7/2012, but before 15/12/2016.

  • If undisclosed income is accepted during the process of the search and the taxpayer pays tax and returns interest and files, a fine of 10% of any unrecognized income is due.
  • If the undisclosed income is not admitted, but is presented in the return well after search, 20% of the undisclosed revenue shall be payable.

In all other situations, the penalty is payable at 60%.

  • Where the search was started on / after 15/12/2016.
  • If undisclosed revenue is admitted during the process of the search and the taxpayer pays taxes and interest and files returns, a liability of 30% of any undisclosed revenue is due.
  • In all such situations, a penalty of 60 percent is due.

Audit and Audit Report

If the taxpayer fails to audit his or her records, acquire an audit report or send a report to the auditor, a penalty shall be assessed at ₹1,50,000 or 0.5% of the net sales/turnover/gross receipts, whichever is less.

If a taxpayer fails to produce an audit report pertaining to an international transaction, a fine of  ₹1,00,000 would be payable.

TDS/TCS

  • If a taxpayer fails to deduct tax at source, he or she will be obligated to compensate for a penalty equivalent to the total of tax that he or she has failed to deduct/pay.
  • If a taxpayer fails to collect tax at source, he or she will be obligated to compensate for a penalty equivalent to the total of tax that he or she has failed to collect.
  • Inability to provide a TDS/TCS declaration or to provide incorrect statements will result in a penalty anywhere from 10,000 to 1,000,000.
  • Failure to provide information/failure to provide correct information related to the TDS deduction relating to non-residents shall result in a liability of up to ₹100,000.

Using modes other than the Account Payee Check/Draft/ECS

  • If a person accepts/receives a loan/deposit, except by Account Payee Check/Account Payee Draft/ECS, and if the cumulative sum reaches 20,000, the individual shall be liable to pay a tax equivalent to the total of the loan/deposit.
  • If a gross payment of ₹2,00,000 or above is earned by an individual on a day/single transaction/in respect of a single case, a tax equal to that amount would be payable.
  • If the individual repays the loan/deposit and the amount so repaid reaches 20,000 and that amount has been repaid, other than by Account Payee Check/Account Payee Draft/ECS, an amount equivalent to that loan/deposit shall be payable.

Failure to provide statements/ details

  • Failure to include a statement of financial transactions or a reportable account shall result in a fine of ₹500 for each day of failure. If the failure is rendered in response to a notification of a stated financial transaction, the punishment shall be no more than ₹1,000 for each day of failure.
  • A fine of 50,000 shall be imposed for the furnishing of an erroneous declaration of the financial transaction/reportable account.
  • Failure to include a statement/information/document within the specified period by a qualified investment fund shall result in a penalty of ₹5,00,000.
  • Inability to include any information/document relating to an overseas transaction shall result in a liability of 2% of the value of that transaction.
  • Failure to include any information/document relating to a foreign transaction to an Indian Concern would result in a penalty of 2% of the amount of the transaction or, in certain instances, a penalty of ₹50,000.
  • If the report/certificate is expected to be issued by the Accountant/Merchant Banker/Registered Valuer and this details is identified to be incorrect, a fine of ₹10,000 for any incorrect report/information is payable.
  • Failure to provide information to any individual who attends/helps to carry on a business/profession of any individual in whose position the revenue tax authority has reached to gather data shall result in a fine of up to 1,000.
  • No reporting by any reporting body that is expected to submit a report.

Others

  • Failure to apply/quote/intimate PAN/quote false PAN will result in a penalty of 10,000.
  • Failure to apply/quote TAN/quote fake TAN shall result in a penalty of up to 10,000.
  • In the event with the above defaults, a fine of 10,000 would be leviable.