Tax is collected on time to ensure easy government functioning. Money required for public welfare is made available to the government at any point in time with the timely collection of taxes.
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Penalties Under the Income Tax Act
Punishment is imposed on the taxpayer/evader who does not pay or delays tax payment. A few of them are listed below:
Penalties Under the Income Tax Act
- Default in Self Assessment Tax: Self-assessment tax means the balance tax due after taking TDS and advance tax into account before filing ITR. Self-assessment tax must be paid before filing ITR. According to Section 140A(3), a person failing to pay a part or whole of self-assessment tax, it’s interest, fee or everything together will be held liable to pay a penalty. The assessing officer decides the amount, and shall not exceed the amount of tax in arrears. However, the officer can levy an amount up to the outstanding tax amount.
- Default in Making Tax Payment: After the income tax department issues the tax demand notice to the taxpayer, the tax must be paid within the next 30 days. Default in payment of tax due on notice will cause the taxpayer to pay a penalty imposed by the assessing officer according to section 221(1). The penalty cannot exceed the outstanding tax amount.
- Late Filing of TDS Return: A taxpayer having TAN (tax deduction and collection account number), is liable to file TDS return in each quarter. Failing to do so on or before the due date, will lead to the imposition of a penalty of Rs 200 a day until the delay in filing the TDS return continues. This amount must not exceed the tax amount due.
- Failure to Comply with the Income Tax Notice: The assessing officer of the income tax department can issue a notice to the taxpayer regarding the following:
- File income tax return
- Produce documents related to income assessment tax
- Request the taxpayer to produce any information in writing
- Request taxpayers to get accounts audited or re-audited by a chartered accountant.
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Failing to comply with such a notice causes the taxpayer to incur a penalty of Rs 10,000 for each instance.
- Concealing Income or Furnishing Wrong Information: If a taxpayer tries to reduce his tax liability by concealing income or furnishing wrong information, then a penalty up 100% to 300% of the tax liability will be imposed by the assessing officer under section 271(1)(c).
- Absence of book of accounts: As per the income tax act, each taxpayer must maintain a book of accounts. Under Section 271A, not doing so means incurring a penalty up to Rs 25,000.
- Absence of Record of International or Specific Domestic Transactions: According to the income tax act, a taxpayer must maintain documents and information regarding international transactions or specified domestic transactions for up to 8 years. Under section 271AA (1), The Absence of these required documents imposes a tax penalty equivalent to 2% value of each international transaction or specified domestic transaction.
- Undisclosed Income Found in Income Tax Search: Income tax department has the right to initiate a search if any suspicious information is received. In case undisclosed income is found during the search, then the following penalties are levied on the taxpayer under section 271AAB(1):
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- 10% of the undisclosed income of the previous year, if the taxpayer admits the undisclosed income, explains its source, pays the tax on or before the due date along with interest amount and furnishes ITR.
- 20% of undisclosed income of the previous year, if the taxpayer does not admit the undisclosed income, but declares the income in IT returns on income on or before the date and pays the tax along with the interest.
- 60% of undisclosed income of the previous year, if above two situations are not covered.
- Not Getting Accounts Audited: If a taxpayer fails to get accounts audited, then a tax penalty is levied under Section 271B. This could be 1.5% of total sales or 1,50,000 rupees; whichever is less.
- Not Furnishing Report from an Accountant: Those taxpayers who get into the international transactions or specified domestic transactions must get a report from a chartered accountant in a specified form and submit it to the income tax department. Failing to do this would mean a tax penalty of Rs 1,00,000 under Section 271BA.
- Failure to deduct TDS: If a taxpayer is required to deduct tax at source, and fails to do so, wholly or partly (deduction or payment), then the taxpayer is liable to pay a tax penalty equivalent to the amount not deducted. Sections 192, 196D and 194B are considered in this situation.
- Failure to Pay Tax From Winning a Lottery or Game: A person responsible for making payment of more than Rs 10,000 to a winner of a lottery contest or other cash related games must deduct tax before paying off the amounts. Failing to do this will lead to a penalty equivalent to the amount of tax not paid.
- Accepting Certain Loans or Deposits in Cash: According to the Income Tax Act, no person shall accept a loan or deposit cash equivalent to an amount exceeding Rs 2,00,000 by any other mode other than an account payee cheque or account payee demand draft or the bank’s electronic fund clearing system. Any contradictory action will lead to a penalty equivalent to the loan amount, amount deposited or advance repaid.
- Delay in Filing Income Tax Return: Failure to furnish an income tax return before the due date will result in a tax penalty of Rs 5,000 levied by the assessment officer.
- Filing Inaccurate Statement of Financial Transactions: Under section 271FAA, a penalty of Rs 50,000 must be levied on the taxpayer, if the taxpayer knowingly files an inaccurate statement of financial transactions.
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- Failure to File TDS Return for More than One Year: If a person fails to file the statement of tax deducted at source/tax collected at source returns for more than one year, then a minimum penalty of Rs 10,000 is imposed on the taxpayer. This amount can go up to Rs 1,00,000. There will be an additional daily penalty of Rs 100 each day, for the late filing of TDS returns.
- Failure to Cooperate with Income Tax Authorities: The income tax department has the right to request taxpayers to submit specific documents, answers, information or sign statements and so on. Failure to comply with this may attract a penalty up to Rs 10,000 for each instance under Section 271A (1).
- Failure to Comply with Provisions Relating to PAN or Aadhaar Card: Failing to comply with the provisions of PAN card or aadhaar card, like giving incorrect PAN, will attract a penalty of Rs 10,000 for each instance.
- Failure to Comply with Provisions Relating to Tax Deduction Account Number (TAN): It is necessary for each individual who collects tax at source or deducts tax at source to obtain a tax deduction number (TAN). Failing to do so attracts a penalty of Rs 10,000.
- Not Filing the Statement of Financial Transaction or annual Information Return (AIR): Failing to file a statement of financial transaction or AIR, will result in imposition of a penalty of Rs 100 for each day while the default continues. The income tax authorities may issue a notice to taxpayers directing them to furnish the returns within 30 days. Failing to do so within 30 days will lead to an imposition of an additional penalty of Rs 500 a day.
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