Penalties for Income Tax Evasion in India

Income tax evasion is an crime and can attract severe penalties in India.  With advancement in technology, the compliance with respect to income tax payment is being tracked more accurately by the Income Tax Department. Further, penalties for non-compliance has also been increased to widen the tax base and increase tax revenue. Hence, income tax compliance must be taken seriously by all individuals and entrepreneurs. In this article, we will throw light on the different penalties tax payer will have to pay under the income-tax act.

Failure to Pay Tax as per Self-Assessment

As per section 140 A (1) if the tax payer fails to pay either wholly or partly self-assessment tax or interest then the tax payer will be treated as a default person. If the assesse is declared as a default person then as per section 221(1) a penalty amount will be imposed by the assessing officer. The criterion for penalty is that it cannot exceed the arrear amount. Therefore the penalty imposed on not making payment of self-assessment tax is solely at the discretion of the assessing officer. If the tax payer is able to provide justified reasons for the delay in paying the tax then the assessing officer can even exempt the assesse from paying penalty.

Failure to Pay Tax as per Demand Notice

If a demand notice is sent to the tax payer asking for payment of tax then the tax payer has to pay that amount in 30 days to the department and the person mentioned in the notice. Failure to make the payment will incur further penal  provisions as well as the taxpayer will be treated as a default assesses for defaulting in the payment of tax.

Concealing Income to Evade Tax

There have been several cases wherein the taxpayer has tried to conceal the original earnings or income. The penalty for concealment of income will be 100% to 300% of the tax evaded as per section 271(C).

If income tax authorities feel the necessity to raid a premise to discover the undisclosed income of the tax payer in such case the penalty levied will be under section 271 AAB. The penalty varies under different scenarios:

• If the tax payer admits the undisclosed income then only 10% of the previous year’s undisclosed amount along with interest will be required to be paid. OF course all the undisclosed income will invariably have to be declared.
• If the tax payer does not disclose the undisclosed amount but does so in the return of income furnished in the previous year- in such case the penalty would be 20% of the undisclosed amount along with interest.
• If the amount is undisclosed for the previous year then minimum 30% and maximum 90% penalty can be levied.

Penalty for Not Filing Income Tax Return

If the return of income is not furnished as required under section 139, sub section (1) then the assessing officer can penalize the tax payer with a penalty of Rs 5000/-.

Penalty for NOT Getting Accounts Audited

If the taxpayer fails to get the account audited or furnish a report of audit required under section 44AB then the penalty incurred will be one half percent of total sales, turnover of the gross receipts or Rs 1,50,000.

If the tax payer fails to present a report from an accountant as required under section 92E then the penalty incurred will be Rs 1,00,000 or more. It is imperative that the tax payer documents every domestic or international transaction and gets a report from a chartered accountant in India on or before the requested date to avoid the penalty.

If any documents are not furnished or attached under section 92(D) 3 then a penalty of 2% of the value of the transaction (international or domestic) will be imposed.

Failure to Comply with Income Tax Notice

If the tax payer fails to comply with the notice issued under section 142(1) or 143(2) then the assessing officer can issue a notice to the tax payer asking (a) to file the return of income (b) ask the tax payer to furnish in writing all the details of assets and liabilities.

Failure to Comply with TDS Regulations

Every person who deducts tax at source or collects tax at source is also required to collect the tax deduction account number or the tax collection account number (TAN). The failure to obtain this tax deduction or collection number calls for a penalty of Rs 10,000. Failure to obtain the numbers could also mean quoting incorrect tax deduction or collection number.

If tax is not collected at source then the penalty levied would be the amount equal to the tax that was not deducted or paid. If the tax payer fails to file TDS/TCS returns before the due date then the taxpayer is liable to pay taxes for each day till the date the payment is made. Late filing fees for delay in TDS/TCS returns can be avoided by filing TDS/TCS returns before the prescribed due date. The penalty imposed for not filing TDS/TCS returns before the due dates can start from Rs 10,000 and go up to Rs 1, 00,000. Late filing fees and interest will have to be paid to the credit of the government.

Failure to Pay Dividend Distribution Tax

As per section 115-O, if a company fails to pay dividend distribution tax on the dividends it has shared then the penalty incurred would be the amount equal to the tax that was not deducted or paid.

Failure to Retain Information & Documents as per Income Tax Act

Failure to retain appropriate information, documentation and more pertaining to international or domestic transaction will attract 2% penalty which is a sum equal to the value of each international or domestic transaction. The transaction details have to be entered by the tax payer. Each transaction copy has to be maintained for an eight year period. When demanded by the Income tax authorities the documents should be presented to the officer within 30 day period. Failure to do so will attract penalty.

Failure to Furnish Accurate Information

If a tax payer does not furnish accurate information or finds out about inaccuracy of the furnished details after submission but does not get it corrected within ten days of submission or knows about the inaccuracy during submission but does not inform the income tax authority then the penalty could be a payment of Rs 50,000/-. Penalty revisions are being done to make rules stringent for inaccurate detail submissions and will soon be notified.

There are also relaxations on penalties for genuine and deserving cases. The commissioner of income tax has the power to completely forego or reduce the penalty if all the facts are clearly presented.