Income Tax Penalty

According to the Income Tax Act 1961, there are various penalties and prosecutions prescribed for the making defaults or breaching of rules regarding tax filing and payment. Some rules are mandatory, and some rules levied as per the discretion of taxing authority. Income Tax rules imposed on individuals or entities are covered under the scope of the Income Tax Act as applicable.

In which situation, the penalty is applicable?

Penalty is applicable either you make default in tax payment or default in filing the tax return. Different scenarios in which penalty could be applicable are:

Default in Self-Assessment Tax:

After-Tax credit and TDS, if still, taxes remain due, and it must be paid before filing the return. Tax to be paid in the form of installments in the same year when the income was earned. Based on the Income Slab, the taxpayer is supposed to make payment of the estimated tax in advance. It is known as Self-Assessment Tax. The balance amount of tax should be calculated by the end of the Financial year. If the tax liability of any person is estimated at more than ₹10,000, then the person is liable for paying Self-Assessment Tax.

Advance Tax Schedule: 15% of tax liability by June 15,45% of tax liability by 15th September and 75% of tax liability by 15 December and 100% of tax liability to be paid by 15th March of the financial year.

Failure to make payment of Self-Assessment tax or infringe benefit tax either wholly or partially will make assessee a defaulter under Section 140A. The penalty amount will be imposed by the Assessing Officer will not exceed the tax arrears.

Not making payment of Tax:

If the Income Tax department issues a notice of tax demand, then it must be payable within 30 days of service of the notice. If by anyhow taxpayer fails to pay tax dues as per the notice, then considered as tax defaulter under Section 221(1). Penalty amount will be imposed by the Assessing Officer will not exceed the tax arrears.

Under reporting or misreporting of Income

If you tried to reduce tax liability, then also penalty will be charged under Section 270A (1). The amount of penalty will almost be 50% of the income which is under-reported or tax payable. In case of deliberate under-reporting then the penalty will be gone up to 200% of under-reported or tax payable income.

Concealing of Income or furnishing inaccurate details or fringe benefit:

In this, the penalty will be imposed under Section 271(1)(c), amounting to 100 to 300 percent of tax evaded or meant to be evaded additionally to tax payable.

Failure to comply with Income Tax Notice:

Assessing officer may issue a notice to the taxpayer and can ask him or her to file Income Tax Return or ask to provide documents that are related to the assessment of Income Tax. Assessing officers can also ask the taxpayer to furnish information in writing or order him to get an income tax audit. Penalty of Rs 10,000 will be charged in this case under Section 272A.

Late filing of TDS return:

In case the taxpayer with TAN not able to file TDS return by the due date, a penalty of Rs 200 is imposed per day basis. But the amount of penalty cannot be more than the due amount of TDS.

Not maintaining of book of accounts:

As per the Income Tax Act, if the taxpayer is unable to maintain documents and books of accounts according to the requirement of Section 44AA, penalty of Rs 25000 is applicable. Penalty impose as per Section 271A.

Undisclosed income identified during Income Tax: If the search is conducted in locations of the taxpayer by Income Tax Authority and undisclosed income is found then penalty charged will be as follows:

• If the search initiated before July, then as per Section 271AAA, penalty will be 10% of the undisclosed income.
• If the search initiated after July, then 10% of the undisclosed income of the previous year specified. Assessee accepts the undisclosed income and validates the manner it was procured. Assessee must make payment of tax, specified by the date along with the interest and after that furnish return of undisclosed income.
• 20% of undisclosed income of the previous year in case assess did acknowledges the undisclosed income. Assessee needs to understand that he or she must make payment of tax by the specified date along with interest and need to furnish the return of his undisclosed income.

For all other cases not included in the above two scenarios, assessee needs to make payment of 30% to 90% of the undisclosed income, as applicable.

Non-maintenance of records of International and Domestic Transactions:

Under Section 271AA (1), the taxpayer is required to maintain documents and information for 8 years from the end of the assessment year.

Failed to do maintenance and keeping of documents and information as required by Section 92D (1) and 92(D).

Failing to report about the transactions:

Maintaining and furnishing of fraudulent documents and information. It will draw a penalty of 2% of the value of the individual international transaction or any specified domestic transaction.

Non-Furnishing of accountant’ report: For certain international and domestic transactions, taxpayers are required to obtain a report from Chartered Accountants and furnish it to the income tax department as per Section 92A.

Failure to report about the same imposes a penalty under Section 271BA of Rs 100,000.

When an account is not getting audited:

If an assessee fails to get an audit of account or not able to furnish a report of the audit as required under Section 44AB, the penalty will be imposed under Section 271B. The amount is the lesser of 1.5% of total sales /gross profit or turnover or Rs 150,000.

No deduction of TDS or TCS:

If the deduction of TDS is required and the person is not able to collect tax before receiving payment or failing to do so will attract penalty as per the Income Tax Act. The penalty is equal to tax not deducted or not collected as applicable.

Non-Payment of Tax after winning of lottery:

If the amount received after winning a lottery exceeds Rs 10,000 then that payment subjected to deduction of tax. In case, the taxpayer fails to pay the tax, the penalty will be imposed on the amount, on which tax has not been paid.

Accepting or repayment of certain deposits and loans in cash:

If any deposits, loan or any repayment exceeds Rs 20,000, it needs to be done via account payee cheque or electronic transfer or through demand draft. Failing to do will impose a penalty that is equal to the loan or deposit amount taken or the amount repaid.

When you are late in filing of Income Tax Return:

Failing to furnish tax return as needed by Section 139(1) before the end of the relevant assessment year, the penalty will be imposed of Rs 5000 as per Section 271F. The penalty is not charged in all cases, depends on the discretion of the Assessing Officer.

It’s not only penalty, there are some other drawbacks also:

• No revision of return is possible in case of error is found
• Interest on the refund will not be given for late filing of tax.
• The Taxpayer cannot carry forward certain losses.
• Certain deduction under Section 80C is not applicable for late filing

Non-filing or inaccurate filing of statement of Financial Transaction:

If a taxpayer fails to file a statement of Financial Transaction or Annual Information Return (AIR), the penalty will be imposed Rs 100 per day for each day until the default is corrected. Authority may ask the taxpayer to file an Income Tax return within 30 days of the notice issued. Non-compliance with the notice will cause a penalty of Rs 500 daily until notice being complied. If deliberately taxpayer files an inaccurate statement of Financial year, penalty will be levied up to Rs 50,000.

Non- filing of TDS for more than 1 year:

If the TDS or TCS not filed for more than 1 year then penalty will be imposed on a person who deducted or collected Tax deduction at source. The minimum penalty imposed is RS 10, 000 and the maximum can reach up to Rs 100,000.

Non-cooperation with the Income Tax Authority:

On occasions where the Income Tax Authority enquires the taxpayer on certain issues, the taxpayer is required to answer the queries, signing of some documents or comply with their summon. Non- Compliance with any of these will result in paying a penalty of Rs 10,000 for each for non-compliance under different subsections of 272A.

Non-compliance related to provisions of PAN-

It is a must to provide PAN in certain financial transactions. If a taxpayer is unable to offer the same or give wrong information, then a penalty of Rs 10000 will be imposed.

Non-compliance related to provision of TAN:

In the case of Tax Deduction at Source or Tax Collection at Source, a person needs to provide Tax Deduction account number (TAN). If in case, the taxpayer not able to do so or provide inaccurate TAN details, then it might result in a penalty up to Rs 10,000.