Penalties for Income Tax Evasion

The Income Tax Act has introduced various penalties for evading Income Tax in India. According to the Act, Income Tax evasion shall be treated as a punishable offence and can attract severe penalties. With the advancement in technology, compliance with respect to income tax payment is being tracked more accurately by the Income Tax Department. Further, penalties for non-compliance have also been increased to widen the tax base and increase tax revenue. Hence, it is recommended income tax compliance should be taken seriously by all individuals and entrepreneurs. In this article, the different penalties which taxpayers will have to pay under the Act are discussed.

Failure to Pay Tax as per Self-Assessment

As per Section 140A(1), if the taxpayer fails to pay either wholly or partly self-assessment tax or interest, then the taxpayer will be treated as a defaulting person. If the assessee is declared as a defaulting person, then a penalty amount will be imposed by the assessing officer. The criterion for the penalty is that it cannot exceed the arrear amount. The arrear amount refers to the amount of tax which the assessee owes to the Income Tax Department. The amount includes self-assessment tax, interest, surcharge and cess. The penalty imposed on not making payment of income tax is solely at the discretion of the assessing officer. If the taxpayer is able to provide justified reasons for the delay in paying the tax, then the assessing officer can even exempt the assessee from paying the penalty.

Failure to Pay Tax as per Demand Notice

A demand notice may be sent to the taxpayer asking for payment of tax. In such cases, the taxpayer has to pay that amount in 30 days to the department. Also, the person mentioned in the notice should be intimated concerning the payment. Failure to make the payment will incur further penal provisions. Also, the taxpayer will be treated as a defaulting assesses for failing in the payment of tax.

Concealing Income to Evade Tax

There may be 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). The income tax authorities may feel the necessity to raid a premise to discover the undisclosed income of the taxpayer. In such cases the penalty levied will be calculated as per Section 271AAB. The penalty varies under the following different scenarios:

- If the taxpayer admits the undisclosed income, then only 10% of the previous year’s undisclosed amount along with interest will be required to be paid. Also, all the undisclosed income will invariably have to be declared.
- The taxpayer may not disclose the undisclosed amount to the Assessing Officer but may do so eventually in the return of income furnished in the previous year. In such case s, the penalty would be 20% of the undisclosed amount along with interest.
- If the amount remains undisclosed for the previous year, then a minimum 30% and maximum 90% penalty can be levied.

Penalty for Not Filing Income Tax Return

If the return of income is not furnished in full compliance with the relevant provisions of the Act, then the assessing officer can penalise the taxpayer 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 per cent of total sales, turnover of the gross receipts or Rs 1,50,000, whichever is more. If the taxpayer 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 taxpayer 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 as required by the Act 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.
It may be noted that it is not mandatory on the part of the assessing officer to levy a penalty in the case of all defaulting cases. The assessee may have been undergoing hardship on account of reasons beyond the control of the assessee. The hardship may have prevented the assessee from carrying out the routine business operations, including maintaining books of account. The hardship may have been caused by natural calamities, such as cyclones, floods and other events of disaster caused by nature. In such cases, the assessing officer can exempt the assessee from the penal provisions of the Act. However, the assessing officer should record in writing the reason for granting the exemption benefit to the assessee.

Failure to Comply with Income Tax Notice

The assessee may fail to comply with the notice issued under Section 142(1) or 143(2). In such cases, the assessing officer can issue a notice to the taxpayer. The notice shall demand that the return of income ought to be filed. Also, the assessing officer may require the taxpayer 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 taxpayer 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

A company may fail to pay dividend distribution tax (DDT) on the dividends it has declared. In such cases, the penalty incurred would be the amount equal to the tax that was not deducted or paid. DDT refers to the tax which a company should withhold at the time of making dividend income available to the members.

Failure to Retain Information & Documents as per Income Tax Act

Failure to retain appropriate information, documentation and more pertaining to an international or domestic transaction will attract a penalty of two per cent. The two per cent should be calculated on a sum which is equal to the value of each international or domestic transaction. The transaction details have to be entered by the taxpayer. 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 the thirty day period. Failure to do so will attract a penalty.

Failure to Furnish Accurate Information

The taxpayer may not furnish accurate information in the Income Tax Return submitted to the authorities. Also, the assessee may find out about the inaccuracy of the furnished details after submission. However, the assessee may not get it corrected within ten days of submission. Alternatively, the assessee may know about the inaccuracy during submission but may fail to inform the income tax authority. In such cases, the penalty could be fifty thousand rupees. Penalty revisions are being done to make rules stringent for inaccurate detail submissions and will soon be notified. There are also relaxations which are awarded on penalties for genuine and deserving cases. The commissioner of income tax has the power to completely cancel the penalty if all the facts are clearly presented. Alternatively, the officer may waive a part of the penalty. However, it is possible to award these benefits only if the default was committed owing to circumstances beyond the control of the assessee.