Tax Evasion in India

Updated: 28-11-2019 13:16:59 PM

What is Tax Evasion?

Tax Evasion refers to various actions and/or activities in which an individual or business entity avoids paying their tax due in part or in full. Non-payment, underpayment of taxes, concealing of assets to reduce tax liability, etc. are some common forms of tax evasion. Tax Evasion is a criminal offence and those who are caught evading taxes are liable to face criminal charges and penalties as per the Chapter XXII of the Income Tax Act, 1961.

Which activities are considered as Tax Evasion According to the Income Tax Act, 1961?

The punishment and penalties applicable to people guilty of indulging in tax evasion depends on the type of offence. The following are key activities that are considered to be tax evasion according to the Income Tax Act, 1961:

• Not Filing Income Tax Returns: One of the most common forms of tax evasion is not filing income tax returns as required by Section 139 of the Income Tax Act. In most cases, person trying to evade taxes is scrutinised to see if the non-filing or partial filing of income tax returns is accidental or deliberate. If they are deemed to be committing fraud, they are subject to harsh punishment. Otherwise, they need to file taxes correctly after paying the necessary penalties.
• Not providing or misquoting PAN: If an employee does not quote PAN to the employer, the employer is required to deduct 20% TDS from the former’s salary else, 10% TDS is deducted. However, quoting the wrong PAN or not providing PAN to appropriate authorities can attract a heavy penalty. This is because it is labelled as a form of identity theft.
• Concealing Income to Evade Tax: Some taxpayers try to conceal their actual income so that their tax liability is calculated to be lower than the actual. This is another common form of tax evasion. They can do so by associating their assets with a person other than themselves or a different name/PAN. Another common method of concealing income is accepting cash to avoid TDS deduction or under reporting transactions made by the business/individual.
• Not Complying with Income Tax Notice: Tax authorities such as the Assessing Officers review income tax returns and may issue a notice if they notice a discrepancy in the income, tax and or any other details provided. In this case, not complying with a notice issued by the Income Tax department is considered to be a form of tax evasion.
• Not maintaining compliant Books and accounts: Maintenance of complaint books and accounts are specified u/s 44AA of the Income Tax Act, 1962. Failure to maintain compliant books may also be considered as an attempt to evade taxes and accordingly penalties may be imposed by the assessing officer in accordance with the Income Tax Act, 1961.  

What are the Different Penalties and Punishments for different types of Tax Evasion in India?

If an individual or business entity is found to be wilfully evading taxes, penalties may be imposed depending on the type of offences committed. The following are some of the penalties for attempted tax evasion in India:

• Non-payment of Taxes: The assessing officer decides the amount of penalty levied on the taxpayer guilty of tax evasion. In these cases, the penalty amount cannot exceed the tax amount in arrears. Such penalty is applied in addition to the actual amount of tax in arrears.
• Misquoting/Non-furnishing of PAN: This is treated as a case of identity theft and can attract a penalty of up to Rs. 10,000.
• Concealing Income: Under-reporting of income can attract a penalty of up to 50% of tax payable on the unreported income. This penalty is applied to the actual due tax amount calculated on the unreported income.
• Not Complying with Income Tax Notice: If you do not comply with the income tax notice sent to you by the income tax authorities, a heavy penalty may be levied for each day after the last date mentioned on the notice for taking action.
• Not Maintaining Compliant Books/Accounts: In cases where the books/accounts maintained by tax authorities are not in compliance with Section 44AA of the Income Tax Act, 1961, the assessing officer may impose a penalty of up to Rs. 25,000.    

What are the Key Differences between Tax Evasion and Tax Planning?   

Here are the main differences between tax evasion and tax planning:

• Basic Approach: If you want to make the most of the money you earn, you must consider the actions that are permitted by law to reduce your tax liability. This activity is known as tax planning. Tax planning is a legal activity. In contrast with this, tax evasion is considered illegal since the assessee indulges in fraudulent activities to reduce tax burden.
• Activities: While tax evasion consists of aforementioned activities such as misquoting PAN, concealing income, withholding important information about financial assets in addition to others, tax planning consists of carrying out financial activities to avail tax benefits with the best possible use of tax exemptions, deductions, investments, etc.

End Result: Tax evasion can cost a taxpayer dearly since it attracts various penalties and punishment. However, tax planning is permitted by law allowing the taxpayer to make the most of his income, assets and investments.