What are the penalties available under the Income Tax Act?

Last Updated at: December 14, 2019
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What are the penalties available under the Income Tax Act?

Are you filing your income tax returns properly within the due date? Failure to comply with the laws listed in the Income Act leads to the levying of various penalties which differ in severity as per the severity of the default.

The Indian Income Tax Act, 1961 lays down all the laws related to the payment and filing of taxes in India and is a very important piece of legislation. Here’s a look at all the income tax penalties specified under the Income Tax Act.

Default in paying self-assessment tax

According to section 140A(1), any tax leftover after crediting TDS must be paid before filing IT returns. This tax is called self-assessment tax and failure to pay this will result in treatment of the individual as an assessee. Such a person has to pay the required penalty as decided by the Assessing Officer. Before being fined, the individual must be given a platform to be heard and if he or she is able to convince the tax authorities of his or her innocence, then no penalty shall be levied.

As per Section 234F, the penalty is:

  • INR 5000 if ITR is filed before 31 December
  • INR 10,000 if otherwise
  • If total income is less than INR 5 lakhs, then the fee is INR 1000.

Default in paying tax

According to Section 220(1), an individual must pay the tax within 30 days of receiving a notice under Section 156. If needed, this period may be reduced by taking permission from the required authorities.

In case a default has been made with respect to paying tax, the individual becomes an assessee in default and must hence, pay a penalty decided by the Assessing Officer.

Late filing  of TDS/TCS statement

As per Section 200(3), every person who gets a TDS deduction must file a TDS return and everyone who is subjected to a collection of tax at source must file a TCS return. As per Section 234E, if someone fails to file the return, then they will be charged Rs.200 for every day until the return is filed. But care must be taken to ensure that the penalty does not exceed the TDS/TCS amount.

Default in furnishing return of income

As per Section 139(1), if an individual fails to furnish his or her return of income within a stipulated time, then they will be liable to pay the below mentioned fees:

    • INR 5000 if furnished before 31 December
    • INR 10,000 if otherwise
    • If total taxable income is less than Rs. 5 lakh, then the fee is Rs. 1000.

Start Your Tax Return

Section 142(1) or 143(2) or 142(2A) Compliance Failure

If any taxpayer fails to comply with the directions issued under section 142(1) ,143(2) or 142(2A), then a penalty will be levied as per section 272A. The penalty in such cases is Rs. 10,000 for each failure.

Underreporting and misreporting of income

As per Section 270A, the taxpayer will be held responsible if he or she underreports or misreports his or her income. The penalty levied will be of the order of fifty per cent of the tax payable on the

under-reported income. If the income was misreported, then the penalty will be 200% of the tax payable.

Misreporting of Income

This includes:

  • Suppression of facts
  • Improper book-keeping
  • Expenditure claims without evidence
  • Falsification of accounts book
  • Not recording receipts in the account book
  • Failure to report international transactions

Angel tax

Also, as per Section 56(2) if a company issues shares at any price higher than its FMV, then it must pay tax on this difference in price and this is called ‘Angel Tax’. Certain start-ups will be exempt from having to pay the Angel tax as per the Department for Promotion of Industry and Internal Trade if found satisfying certain prescribed conditions. Difference in the price of shares sold and the FMV is considered as an additional income to the company and is hence taxable. Furthermore, it is also regarded as misreported income and the company is hence liable to pay a penalty which amounts to 200% of the difference between the prices.

Section 44AA compliance failure

As per the Indian Income Tax Act, every taxpayer must maintain an account book as per section 44AA. Failure to maintain a regular account book that contains all the transactions undertaken by the taxpayer without any omission results in the taxpayer having to pay a penalty of Rs. 25,000.

Failure to maintain Information about international transactions

As per Section 92D, every individual that takes part in either international or specified domestic transactions must maintain and preserve all documents and data regarding the same. The IT Department can ask for these documents at any time it deems fit. And on such a demand, if the papers are found missing on unsatisfactory within 30 days of making the request, then the individual is liable to pay a penalty for the same. Such documents must be kept safely by taxpayers for 8 years and non-compliance of this law results in a penalty of Rs 5,00,000.

Income from undisclosed sources

As per Sections 68, 69,  69A, 69B, 69C and 69D if an assessee cannot explain the nature and source of his or her income, then a penalty amounting to 10% of the tax payable may be levied.

Penalty in case of Search

If the search was initiated after 1/7/2012 and before 15/12/2016,

  • If assessee pays tax and interest on the undisclosed amount and files return, the penalty is 10% of the undisclosed income.
  • If the assessee does not admit the undisclosed income but files return on it, the penalty will be 20% of the undisclosed income.
  • In all other cases, the penalty will be 60%.

If Search was initiated  after 15/12/2016,

If assessee pays tax and interest on the undisclosed income and files return, the penalty is 30% and in all other cases, it is 60%.

Failure to get accounts audited

As per Section 44AB, all the account books of the taxpayer must be audited and failure to do results in the levying of a penalty as per section 271B. The penalty will be the lesser of one-half per cent of total sales or Rs. 1,50,000.

TDS/TCS

If someone fails to deduct or collect tax at source, then they must pay a penalty equal to that amount. If an individual does not furnish the statement for the same, the penalty may vary between₹10,000 and ₹1,00,000, whereas for NRIs the penalty is ₹100,000.

Modes other than account payee cheque/ draft/ ECS

If someone accepts loans exceeding ₹20,000 through any mode other than Account payee cheque/ account payee draft/ ECS, they must pay a penalty resulting to an amount equal to the loan. If the transaction amount is over ₹2,00,000, the penalty payable will be equal to the amount.

Miscellaneous

  • Not quoting PAN or providing wrong PAN credentials leads to a ₹10,000 fine and the same is applicable for TAN.
  • Refusing to answer questions raised by the IT department, not signing IT returns, non-compliance and not providing evidence asked by the department all results in a fine amounting to ₹10,000.

These are summary of the important penalties a taxpayer should know. Get in touch with Vakilsearch Chartered Accountants and taxation experts to get all your Income tax-related queries answered.

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What are the penalties available under the Income Tax Act?

945

Are you filing your income tax returns properly within the due date? Failure to comply with the laws listed in the Income Act leads to the levying of various penalties which differ in severity as per the severity of the default.

The Indian Income Tax Act, 1961 lays down all the laws related to the payment and filing of taxes in India and is a very important piece of legislation. Here’s a look at all the income tax penalties specified under the Income Tax Act.

Default in paying self-assessment tax

According to section 140A(1), any tax leftover after crediting TDS must be paid before filing IT returns. This tax is called self-assessment tax and failure to pay this will result in treatment of the individual as an assessee. Such a person has to pay the required penalty as decided by the Assessing Officer. Before being fined, the individual must be given a platform to be heard and if he or she is able to convince the tax authorities of his or her innocence, then no penalty shall be levied.

As per Section 234F, the penalty is:

  • INR 5000 if ITR is filed before 31 December
  • INR 10,000 if otherwise
  • If total income is less than INR 5 lakhs, then the fee is INR 1000.

Default in paying tax

According to Section 220(1), an individual must pay the tax within 30 days of receiving a notice under Section 156. If needed, this period may be reduced by taking permission from the required authorities.

In case a default has been made with respect to paying tax, the individual becomes an assessee in default and must hence, pay a penalty decided by the Assessing Officer.

Late filing  of TDS/TCS statement

As per Section 200(3), every person who gets a TDS deduction must file a TDS return and everyone who is subjected to a collection of tax at source must file a TCS return. As per Section 234E, if someone fails to file the return, then they will be charged Rs.200 for every day until the return is filed. But care must be taken to ensure that the penalty does not exceed the TDS/TCS amount.

Default in furnishing return of income

As per Section 139(1), if an individual fails to furnish his or her return of income within a stipulated time, then they will be liable to pay the below mentioned fees:

    • INR 5000 if furnished before 31 December
    • INR 10,000 if otherwise
    • If total taxable income is less than Rs. 5 lakh, then the fee is Rs. 1000.

Start Your Tax Return

Section 142(1) or 143(2) or 142(2A) Compliance Failure

If any taxpayer fails to comply with the directions issued under section 142(1) ,143(2) or 142(2A), then a penalty will be levied as per section 272A. The penalty in such cases is Rs. 10,000 for each failure.

Underreporting and misreporting of income

As per Section 270A, the taxpayer will be held responsible if he or she underreports or misreports his or her income. The penalty levied will be of the order of fifty per cent of the tax payable on the

under-reported income. If the income was misreported, then the penalty will be 200% of the tax payable.

Misreporting of Income

This includes:

  • Suppression of facts
  • Improper book-keeping
  • Expenditure claims without evidence
  • Falsification of accounts book
  • Not recording receipts in the account book
  • Failure to report international transactions

Angel tax

Also, as per Section 56(2) if a company issues shares at any price higher than its FMV, then it must pay tax on this difference in price and this is called ‘Angel Tax’. Certain start-ups will be exempt from having to pay the Angel tax as per the Department for Promotion of Industry and Internal Trade if found satisfying certain prescribed conditions. Difference in the price of shares sold and the FMV is considered as an additional income to the company and is hence taxable. Furthermore, it is also regarded as misreported income and the company is hence liable to pay a penalty which amounts to 200% of the difference between the prices.

Section 44AA compliance failure

As per the Indian Income Tax Act, every taxpayer must maintain an account book as per section 44AA. Failure to maintain a regular account book that contains all the transactions undertaken by the taxpayer without any omission results in the taxpayer having to pay a penalty of Rs. 25,000.

Failure to maintain Information about international transactions

As per Section 92D, every individual that takes part in either international or specified domestic transactions must maintain and preserve all documents and data regarding the same. The IT Department can ask for these documents at any time it deems fit. And on such a demand, if the papers are found missing on unsatisfactory within 30 days of making the request, then the individual is liable to pay a penalty for the same. Such documents must be kept safely by taxpayers for 8 years and non-compliance of this law results in a penalty of Rs 5,00,000.

Income from undisclosed sources

As per Sections 68, 69,  69A, 69B, 69C and 69D if an assessee cannot explain the nature and source of his or her income, then a penalty amounting to 10% of the tax payable may be levied.

Penalty in case of Search

If the search was initiated after 1/7/2012 and before 15/12/2016,

  • If assessee pays tax and interest on the undisclosed amount and files return, the penalty is 10% of the undisclosed income.
  • If the assessee does not admit the undisclosed income but files return on it, the penalty will be 20% of the undisclosed income.
  • In all other cases, the penalty will be 60%.

If Search was initiated  after 15/12/2016,

If assessee pays tax and interest on the undisclosed income and files return, the penalty is 30% and in all other cases, it is 60%.

Failure to get accounts audited

As per Section 44AB, all the account books of the taxpayer must be audited and failure to do results in the levying of a penalty as per section 271B. The penalty will be the lesser of one-half per cent of total sales or Rs. 1,50,000.

TDS/TCS

If someone fails to deduct or collect tax at source, then they must pay a penalty equal to that amount. If an individual does not furnish the statement for the same, the penalty may vary between₹10,000 and ₹1,00,000, whereas for NRIs the penalty is ₹100,000.

Modes other than account payee cheque/ draft/ ECS

If someone accepts loans exceeding ₹20,000 through any mode other than Account payee cheque/ account payee draft/ ECS, they must pay a penalty resulting to an amount equal to the loan. If the transaction amount is over ₹2,00,000, the penalty payable will be equal to the amount.

Miscellaneous

  • Not quoting PAN or providing wrong PAN credentials leads to a ₹10,000 fine and the same is applicable for TAN.
  • Refusing to answer questions raised by the IT department, not signing IT returns, non-compliance and not providing evidence asked by the department all results in a fine amounting to ₹10,000.

These are summary of the important penalties a taxpayer should know. Get in touch with Vakilsearch Chartered Accountants and taxation experts to get all your Income tax-related queries answered.

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