Income Tax Penalties: A Detailed Overview
Updated: Oct 22
Taxpayers are required to pay their taxes on time, and filing income tax returns guarantees the government will always have funds available for the general public's welfare and benefit. The Income Tax Act specifies a number of penalties to prohibit any default in filing taxes or providing any information. An assessee who violates the Income Tax Act is subject to penalties. Penalties are imposed for multiple defaults by the taxpayer under the Income Tax Act of 1961. While certain penalties are mandatory, others are left up to the tax authorities' judgement. The sections of the Income-tax Act, 1961 regarding various fines will be discussed in this article. This article will talk about different penalties imposed under the Income Tax Act.
Table of Contents
Failure to Provide Information/Statements
Section-Wise Summary of Other Income Tax Penalties
Conclusion
Default in Making Income Tax Payment
Section 220(1) states that a taxpayer shall pay the amount due within 30 days of receiving a demand notice under section 156 of the Act for the payment of tax (other than advance tax). Section 221(1) stipulates a general penalty that can be applied to any situation where the taxpayer is considered to be in default as an assessee. The taxpayer is entitled to a fair chance to be heard prior to any penalties being assessed. The amount that the assessing officer specifies. However, the penalty cannot be greater than the overdue tax amount.
Default in Furnishing Income Tax Return
According to Section 234F, the assessee who is obligated to file income tax returns will be punished if he does not do so by the deadline specified in section 139(1).
If the return is submitted by December 31 of the assessment year, or before, the amount is Rs. 5000.Otherwise, in any scenario, Rs. 10,000.
In any case, the fee that must be paid is Rs. 1000 if the individual's total income is less than Rs. 5 lakh.
TDS/TCS Deduction or Collection Issues
If an individual neglects to deduct tax at source, they will be responsible for paying a penalty equivalent to the amount of tax they neglected to deduct or pay.
If someone does not collect tax at the source, they will be responsible for paying a penalty equivalent to the amount of tax they did not collect.
Penalties for providing false information or failing to provide a TDS/TCS statement can range from ₹10,000 to ₹1,00,000.
A fine of ₹1,00,000 will be imposed for failing to provide information or providing false information about TDS deductions pertaining to non-residents.
Delay in Filing the TDS/TCS Statement Return
Everybody is required to deduct tax at source and to file a TDS return, which is a statement of the amount they have deducted. This is stated in section 200(3). Everybody who is liable to collect tax at source is required under section 206C (3) to provide a statement regarding the tax they have levied, which is known as a TCS return. The penalty for filing a TDS/TCS return after the deadline is outlined in Section 234E. Failure to file a TDS/TCS return may result in a payment of Rs. 200 for each day the failure persists.
July 31, 2024, is the deadline for submitting ITRs for the fiscal year 2023–24 (assessment year 2024–25). Given the complexity of the procedure, it makes sense that some people could find it tiresome. While you may file a late return until December 31, 2024, you will have to pay a penalty. According to your income level, different penalties may be applicable for filing your ITR late. Among them are:
If an individual's net taxable income for the financial year 2023–24 (AY 2024–25) exceeds Rs. 5 lakhs, they may be penalised up to ₹5,000 for filing a late return.
A taxpayer's maximum penalty for late ITR filing is ₹1,000 if their net taxable income is Rs. 5 lakhs or less.
Failure to Maintain Books and Documents
The Act stipulates that a taxpayer must keep, maintain, or retain books of accounts; otherwise, a penalty of ₹25,000 will be assessed.
If the taxpayer is an individual who has transacted internationally, the penalty is two percent of the total amount of those transactions.
Non-Compliance to Audit and Audit Report
If the taxpayer neglects to have his accounts audited, receive an audit report, or provide a report from such auditor, a penalty of ₹1,50,000 or 0.5% of the entire turnover would be imposed.
A ₹1,00,000 fine would be owed by the taxpayer if the audit report for the foreign transaction is not provided.
Undisclosed Income
If hidden income is included in the income determination, a penalty of 10% is due. However, if such income was reported on the return and the tax was paid before the end of the applicable prior year, there wouldn't be any such penalties.
If undisclosed money is discovered during a search that was started on or after December 15, 2016, and the assessee pays tax, and interest, and files a return, a penalty of 30% of the undisclosed income is due.
Penalties in all other circumstances are imposed at 60%.
Misreporting/Under-Reporting of Income
A penalty of 50% of the tax payable on such underreported income will be imposed if the income assessed or reassessed exceeds the income declared by the taxpayer or if a return has not been submitted and the income exceeds the basic exemption level. See for more information. If income is misreported and underreported, 200% of the tax is due.
False Entry such as Fake Invoices
Should the tax officer discover that any of the following is present in the books of accounts that the taxpayer submitted for the proceeding:
Fabricated or falsified records, such as a fake invoice, fraudulent documented proof, or an invoice for the provision of goods or services without the real provision.
An unidentified person's supply invoice; an entry that is missing that is important to the calculation of total income.
The assessee may therefore be required to pay a penalty equivalent to the total of these omitted or incorrect entries.
Using Modes Other Than ECS/Cheque/Draft for Loan Acceptance/Repayment
A person will be responsible for paying a penalty equal to the loan or deposit amount if they take out or accept a loan or deposit other than through an account payee cheque, account payee draft or electronic money transfer (ECS) and the total amount exceeds 20,000.
A penalty equal to the amount received from an individual in a single transaction, day, or event that totals more than ₹2,00,000 shall be charged.
A penalty equivalent to the loan or deposit amount will be charged if someone repays a loan or deposit and the total amount paid back is more than 20,000 by a method other than an account payee cheque, account payee draft or electronic money transfer.
Failure to Provide Information/Statements
A penalty of ₹500 will be assessed for each day that a statement of financial transactions or a reportable account is not provided, up until the end of the notice period. If the failure persists beyond the notification period, ₹1,000 will be charged as a penalty for each day of noncompliance.
Giving false statements about a financial transaction or reportable account will result in a ₹50,000 fine. Moreover, there would be a ₹5,000 fine for each reportable account.
A penalty equal to 2% of the transaction's value will be imposed for failure to provide any information or documentation on an overseas transaction.
A ₹5,00,000 penalty would be imposed if a qualifying investment fund fails to provide any statements, information, or documentation within the allotted time.
If an accountant, merchant banker, registered valuer, or other needed party provides a report or certificate and it turns out that the information is inaccurate, there will be a penalty of ₹10,000 for each inaccurate report or piece of information.
A fine of up to 1,000 may be imposed on anyone who attends or assists in carrying on the business or profession of someone in whose premises or location the income tax authority has entered to gather information.
The following penalties will apply if a reporting organisation that is required to provide a country-by-country report fails to produce the report.
Rs. 5000 per day for up to 1 month
Rs. 15000 per day thereafter for ongoing default
Rs. 500,000 for submitting inaccurate information
Others
A)Not applying, quoting, informing PAN, or using a fraudulent quote PAN will result in a ₹10,000 fine.
B)Punishment for not applying, citing, or quoting a fraudulent TAN is ₹10,000.
C)The following defaults will result in a penalty of ₹10,000.
Refusal to respond to inquiries from the department
Refusing to sign declarations submitted during tax procedures
Failure to appear when summoned to testify or present records of accounts
Noncompliance with a notification
Section-Wise Summary of Other Income Tax Penalties
Section 158BFA
The determination of undisclosed income for the block period occurs when a search is started under section 132, or when any person has their books of accounts, other documents, or assets requisitioned under section 132A. The minimum amount is 100% of the tax that is due on the undisclosed income, and the maximum amount is 300% of the tax that is due. Only the percentage of the income that the ITO found to be higher than the ITR provided by the assessee under section 158BC will be subject to this penalty; an appeal of the assessment will not be lodged.
Section 271AA(1)
Penalties related to a certain local transaction or an international transaction regarding:
Not keeping and maintaining any records or information as mandated by Section 92D(1) or 92D(2)
Not reporting the necessary transactions in a timely manner
Maintaining or providing false information or documentation for each international transaction or specific domestic transaction that is entered into, up to 2% of the total value.
Section 271AA(2)
Not providing information and documentation to the designated authorities as mandated by Section 92D(4)- Rs. 5,00,000
Section 271AAA
In cases where a Section 132 search was started between June 1, 2007, and July 1, 2012, 10% of the concealed income from the relevant prior year
Section 271AAB(1)
If the search was started after July 1, 2012, but before December 15, 2016, and concealed income was discovered,
The assessee will get 10% of the undisclosed income if they acknowledge the undisclosed income and the method by which it was obtained, provide evidence of how the undisclosed money was obtained, pay the tax due plus interest and provide the income return for the specified prior year with the undisclosed income on or before the designated date
20% of the undisclosed income in the following scenarios: The assessee does not acknowledge the undisclosed income; declares income for the relevant prior year; and pays tax and interest on the undisclosed income within the deadline.
60% of the unreported income: If not exempt from the foregoing the above-mentioned clauses.
Section 271AAB(1A)
If, after December 15, 2016, a search was conducted and undisclosed income was discovered,
The assessee will be entitled to 30% of the undisclosed income if they acknowledge the undisclosed income and the method by which it was obtained; provide evidence of how the unreported revenue was obtained; on or before the designated date, pay the tax and interest and provide the income return for the specified prior year disclosing any unreported income.
60% of the unreported income in the event that subsection (a)'s requirements do not apply to it.
Section 271AAC
If the assessee does not include income under sections 68, 69, 69A, 69B, 69C, and 69D, or if tax under section 115BBE is not paid, the assessing officer will determine it. A 10% penalty is due under Section 115BBE.
Section 271J
Inaccurate information provided in reports or certificates by an accountant, merchant banker, or registered valuer will cost you Rs. 10,000 for each one of these.
Section 272A(1)
Any individual who neglects or declines to Respond to inquiries made by the IT authority, sign declarations that the IT authority requests, provide testimony or turn over books in response to a summons issued under Section 131(1), or follow the instructions provided in Section 142(1), 143(2), or 142(2A) will have to pay a penalty of Rs. 10,000 for every default.
Section 272B
A penalty of Rs. 10,000 will be levied for not adhering to Section 139A concerning an Aadhar number or permanent account number (PAN). Section 139(5)(c) mandates that PAN be quoted in the papers in the manner specified by the Board. PAN must be given to the person who is responsible for collecting taxes from the buyer, licensee, or lessee. PAN must be given to the person who is receiving the income and deducting taxes. If the PAN provided is untrue in any of the situations, or if the individual suspects it to be fraudulent, they will be subject to penalties.
Section 272BB
Ignoring to apply or cite the tax collection number or deduction or falsely quoted tax deduction or collection number, or the person suspects it is not true, shall be liable for Rs. 10,000.
Reasons to Be Tax-Compliant
For several reasons, tax compliance is essential.
The filing of your income tax return is required by law. Penalties and possible legal repercussions may follow noncompliance with regulations.
Make sure your taxes are correctly submitted to provide yourself peace of mind and avoid problems down the road.
Benefits include the possibility of receiving special tax breaks or refunds if your return is filed on time.
Conclusion
It is necessary to file the income tax returns or TDS/TCS by the deadline. Penalties for breaking the laws listed in this article vary depending on how serious the default was. An important piece of legislation that establishes all the rules pertaining to tax filing and payment in India is the Indian Income Tax Act. Taxpayers can steer clear of these penalties by staying on the right side of the guidelines.
FAQ
Q1. Can multiple penalties be charged from one taxpayer?
It is possible for a taxpayer to face several penalties if they are found guilty of different chargeable offences.
Q2. Can the penalty for default in tax payment be waived off after the payment of the self-assessment tax?
No, just because the taxpayer paid the self-assessment tax prior to the penalty being imposed does not mean that the penalty for failing to pay taxes will be lifted.
Q3. How can a taxpayer pay an income tax penalty?
Unless the government extends the deadline, income tax returns must be filed by July 31st. Failing to file an ITR will result in an income tax penalty. Penalties for unpaid income taxes can be paid online or offline. To pay via the offline method, the taxpayer must go to the closest bank branch and accurately complete Form ITNS-280. Send the completed form and the required payment. The taxpayer should access the official income tax e-filing system to file electronically.
Q4. How can one avoid a late tax penalty?
If taxes are not paid, income tax returns cannot be filed. It is crucial to remember that income tax returns must be paid before the deadline. Typically, this occurs on July 31st of the evaluation year. There are, however, occasional exceptions, where the government extends the deadline for a specific reason. As soon as the due date passes, there is a penalty. A monthly interest of 1% is assessed; the longer the penalty period, the greater the amount that must be paid. Make sure to file returns by the deadline to avoid paying late taxes.
Q5. What is the penalty for income tax scrutiny?
If false financial statements or reportable accounts are provided, a payment of Rs 50,000 is due.
Q6. Is it possible to get the penalties for underreporting or misreporting income waived?
Yes, after meeting the requirements listed below, taxpayers may apply under section 270AA to the officer for immunity from penalty under section 270A.
The assessment order's tax and interest are paid by the deadline specified in the demand notice.
There is no appeal for the assessment order.
For such a waive-off, an appropriate application must be submitted.
Q7. For which defaults can the Assessing Officer waive off penalties when the taxpayer proves reasonable cause for default?
The Assessing Officer may waive the penalty proceedings if the taxpayer can demonstrate a legitimate explanation for their failure or for committing any of the defaults outlined in section 273B. Listed are a few instances of defaults:
Failing to maintain books of accounts, records, etc. in accordance with section 44AA, deduct TDS/TCS, and file a TDS/TCS return.
Inaccurate assessment or nonpayment of advance taxes.
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