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Income Tax Rules: No Escape By Paying a Penalty Research Team | Posted On Tuesday, June 18,2019, 04:34 PM

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Income Tax Rules: No Escape By Paying a Penalty



The Income Tax department has decided to tighten the screws on tax evaders. You will not be able to settle cases of tax evasion by simply paying tax, penalty and interest. This will not be just another case of tax evasion.

The Income Tax Department has issued new guidelines which are effective from 17th June 2019. Serious offences under Black Money and Benami Law are non-compoundable. This means you can’t pay a stiff compounding fee and escape prosecution.

The tax department has listed 13 cases where offences are generally not-compounded. The offences would also be grouped into two parts. What are these categories? How will you be punished on evading taxes? Let’s dig deeper.

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Income Tax Rules: No Escape By Paying a Penalty

Let’s take a look at the two categories of offences. The category ‘A’ offences include the failure to pay TDS or Tax Deducted at Source. This comes under Chapter XVII-B or tax payable under Section 115-0. The failure to pay tax collected at source or TCS also comes under this category. You will have to pay a compounding fee for the failure to deposit TDS or file income tax returns.

The Category ‘B’ offences are mainly the willful attempt to evade taxes; you fail to produce documents and accounts and make false statements in verification.

Offences of the first category are open to compounding. The category ‘A’ offence on more than 3 occasions is not generally compounded. However, willful evasion of tax and concealment/transfer/delivery of a property to evade tax recovery in a search operation will not be compounded.

See Also: Income Tax Rules For FY 2018-19

1. Which Offences Don’t Merit Compounding by Tax Authorities?

The willful evasion of tax, Removal/Transfer/Concealment of delivery of property with the aim to stop tax recovery in a search operation, the offences committed under sections 275A, 275B and 276 of the Act, Offences under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and even the offences under Benami Transactions (Prohibition) Act, 1988 don’t merit compounding by the tax authorities.

Compounding doesn’t apply when it’s proved that you (taxpayer) helped other people evade tax. (This could be through entities which are used to launder money). If you (taxpayer) generate bogus invoices of sales or purchase or provide accommodation/bogus entries (These are commonly routed through shell companies as share capital to evade taxes).

See Also: Income Tax Law And Income Tax

2. How is the Government Chasing Tax Evaders?

The Government is targeting tax defaulters, especially those who stash black money abroad. This category of taxpayers will not be able to compound offences. This means the defaulter cannot escape by paying a stiff compounding fee instead of being prosecuted.

Offences like not depositing TDS with the Government are compoundable on not more than 3 occasions. Offences like a willful attempt to evade taxes are compounded only for a first-time offence.

Compounding fees have been increased in most cases. However, there’s a relaxation when it comes to a delay in depositing TDS. The compounding fees have been reduced from 3% a month to just 2% a month. This is only if the defaulter has applied for compounding before the default was noticed by the income tax authorities. What if the TDS default is less than a Lakh? Well, there’s a cap on the compounding fees. The compounding fees must not exceed the TDS amount + interest.

See Also: New Tax Rules Which Help To Save Tax

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