As per the Income Tax Act 1961, there are various penalties and prosecutions prescribed for defaults and breaches of rules regarding tax filing and payment. Some of these rules are mandatory while some other rules could be levied as per the discretion of taxing authority. These rules are imposed on individuals, corporations or any other entities that are covered under the scope of Income Tax Act, as applicable.
Penalty is applicable either for:
(a) Default in tax payment
(b) Default in filing the tax return
Following are the different scenarios where an income tax penalty could be applicable under these two categories.
(1) Defaulting in Self-Assessment Tax– After TDS and Tax credit, if still taxes are due, the same has to be paid prior to filing the return. These taxes should be paid in instalments in the same year when the income was earned. Based on the income slab, the tax payer is supposed to pay estimated tax in advance. These are called Self-Assessment Tax or Advance Tax. Balance tax amount should be calculated by the end of the financial year. If the tax liability of any person is estimated to be over Rs.10,000, then the person is liable for paying Self-Assessment Tax.
Advanced tax schedule is: 15% of tax liability by June 15th, 45% of tax liability by 15th September, 75% of tax liability by 15th December and 100% of tax liability by 15th March of the financial year.
Failure to pay Self-assessment tax or Infringe Benefit Tax, either wholly or partially will make the assesse a defaulter under Section 140A.
Income tax penalty amount will be imposed by the Assessing Officer and will not exceed the tax arrears.
(2) Not making Payment of the Tax– If Income Tax department issues a notice of Tax Demand then the tax becomes payable within 30 days of the service of the notice. Failing to pay the tax dues as per notice, will cause default under Section 221(1).
Penalty amount will be imposed by the Assessing Officer and will not exceed the tax arrears.
(3) Under-reporting or Misreporting of Income- An attempt to reduce the tax liability will be penalised under Section 270A (1).
Penalty amount equals to 50% of income that is Under-reported or Tax payable. In case of deliberate under-reporting, the penalty could go up to 200% of Under-reported or Tax payable income.
(4) Concealing of Income or Fringe Benefit or furnishing inaccurate details– This will apply penalty under Section 271(1)(c), amounting to 100% to 300% of the tax evaded or meant to be evaded additionally to the tax payable.
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(5) Failure to Comply with IT Notice- Assessing Officer could issue notice to tax payer asking to file income tax return, or ask to produce documents related to the assessment of income tax and/or ask the tax payer to furnish information in writing or order him to get account audited/re-audited. For non-compliance of all these points, under Section 272A, a penalty of Rs.10,000 will be levied for each instance/ failure.
(6) Late Filing of TDS Return- In case the taxpayer with TAN fails to file TDS return by the due date, a penalty of Rs. 200 daily is imposed until the tax return is filed. But, the total penalty cannot exceed the TDS amount due.
(7) Non-maintenance of Book of Accounts- As per Income Tax Act, if tax payer cannot maintain documents and Books of Accounts as per the requirement of Section 44AA, a penalty of up to Rs. 25,000 will be applicable. This penalty is as per Section 271A.
(8) Undisclosed Income Identified during Income Tax Search- If search is conducted in the locations of tax payer by Income Tax authority and undisclosed income is found, the penalty is as follows:
- If search was initiated before 1-7-2012, then as per Section 271AAA, penalty will be 10% of the undisclosed income
- If search was initiated on or after 1-7-2012, then:
- 10% of the undisclosed income for the previous year specified in case assesse accepts the undisclosed income and validates the manner it was procured. Assesse has to pay tax by the specified date along with interest and needs to furnish return of this undisclosed income
- 20% of undisclosed income for the previous year specified in case assesse does not acknowledge the undisclosed income. Assesse has to pay tax by the specified date along with interest and need to furnish return of this undisclosed income
- For all other cases not included in the above two scenario, assesse has to pay 30% to 90% of the undisclosed income, as applicable
(9) Non-Maintenance of International and Domestic Transaction Records- Under Section 271AA (1) tax payer is required to maintain documents and information for 8 years from the end of the assessment year.
- Failure to maintain and keep documents and information as required by Section 92D(1) and 92D(2);
- Failing to report these transaction; and
- Maintain and Furnish fraudulent documents and information – will draw penalty of 2% of the value of individual international transaction/or specified domestic transaction that is entered into.
(10) Non-Furnishing Accountant’s Report- For certain international and domestic transactions, tax payers are required to obtain a report from chartered accountants and furnish to the Income Tax Department as required under Section 92A. Failure to do so imposes a penalty under Section 271BA of Rs.1,00,000.
(11) Not Getting Account Audited- If the assesse fails to get accounts audited or cannot furnish a report of audit as required under Section 44AB, penalty will be levied under Section 271B. Amount being the lesser of 1.5% of total sales/ gross profit/ Turnover OR Rs.1,50,000.
(12) Not Deducting Tax at Source (TDS) or Not Collecting Tax at Source (TCS)- If a person is required to deduct tax before making payment or collect tax before receiving payment, failing to do so will attract penalty as per Income Tax Act. The penalty is equal to the tax not deducted/not collected, as applicable.
(13) Non-Payment of Tax after Winning Lottery– If the amount received after winning a lottery or game exceeds Rs.10,000, the payment is subject to tax deduction. In case of failing to pay the tax, penalty will be levied for the amount not paid as tax.
(14) Accepting and/or Repayment of Certain Deposits and Loans in Cash- If any deposit or loan or repayment exceeds Rs. 20,000, it has to be done through account payee cheque or demand draft or through electronic transfer. Failing to do this will attract penalty equal to the loan/deposit amount taken or the amount repaid.
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(15) Late Filing of Income Tax Return- Failing to furnish tax return as needed by Section 139(1) before the end of the relevant assessment year, a penalty of Rs. 5,000 will be imposed as per Section 271F. Penalty for late filing of income tax return is not levied for all the cases and depends on the discretion of the Assessing Officer. Apart from the penalty amount, there are some more drawbacks of late filing.
- Interest on the refund will not be given for late filing
- No revision of the return is possible in case any error is found
- Certain deduction under Section 80 are not available for late filing
- The tax payer cannot carry forward certain losses
In case of inaccurate filing of the Statement of Financial Transaction deliberately by the tax payer, a penalty will be levied up to Rs. 50,000.
(17) Non-Filing of TDS for more than one year- If TDS or TCS is not filed for more than one year then penalty will be applicable for the person who deducted or collected those. The minimum penalty is Rs.10,000 and can reach up to Rs. 1,00,000. This is the additional amount on top of the daily amount of Rs.100 to be paid till late filed.
(18) Non-Cooperation with Income Tax Authority- In the occasions where the Income Tax authority enquires the tax payer on certain issues, tax payer is required to answer the queries, provide information, sign some documents or comply with their summon. Non-compliance with any of these will result in penalty amounting to Rs. 10,000 for each non-compliance under different sub-sections of 272A.
(19) Non-Compliance Related to Provisions of PAN- PAN number is needed to be furnished in certain financial transactions. Non-compliance to provide that or giving wrong PAN information might impose penalty up to Rs.10,000.
(20) Non-Compliance Related to Provisions of TAN- In case of Tax Deduction at Source (TDS) or Tax Collection at Source (TCS), the person doing these need to have a Tax Deduction Account Number (TAN). Not having TAN or furnishing incorrect TAN by them might result in penalty up to Rs. 10,000
Q. What are acceptable reasons for filing late tax return?
Some acceptable reasons for failing to file/pay tax on time may include:
- Fires, civil disturbances or natural disasters
- Inability to get records
- System issues that delayed a timely electronic filing/payment
- Death, serious illness, unavoidable absence of the taxpayer/immediate family
Q. Is there any penalty for revised ITR?
No penalty is levied on filing a revised return. Therefore, in case you have made a mistake, don’t be afraid to correct it by filing a revised return. A revised return will replace the original one. After you file a revised return, it will be considered your final return.
Read more about revised and belated returns
Q. Will I be penalised for late ITR filing even if I am not liable to file it?
No, you are not required to pay late filing fees under section 234F if you are not liable to file ITR as per section 139 but are filing it voluntary even if you file it after the due date.