Income Tax Penalties in India
The Income Tax Act prescribes various penalties for contraventions or defaults committed by taxpayers. The penalty prescribed under the Income Tax Act can either be mandatory or leviable at discretion of a tax authority. In this article, we look at various income tax penalties in India.
Penalty for Default in Self Assessment Tax
As per the Income Tax Act, any tax due after allowing credit for Tax Deducted at Source (TDS) or advance tax should be paid before filing the return of income. Tax paid as such is called self assessment tax in India. If a person fails to pay a part of the whole of self assessment tax or interest, then the taxpayer will be held as a defaulter. Under the income tax act, the penalty for default of self assessment tax cannot exceed the amount of tax in arrears. However, an Assessing Office can impose any amount of fine upto the amount of tax in arrears.
Penalty for Default in Making Payment of Tax
As per the Income Tax Act, when a tax demand notice is issued to a tax payer by the income tax department for payment of tax, then the tax demand is payable within a period of 30 days of the service of notice. If the taxpayer makes default in payment of tax due on notice, then the taxpayer is liable to pay penalty as imposed by the Assessing Officer. However, the penalty imposed by the Assessing Officer cannot be more than the amount of tax in arrears.
Penalty for Late Filing of TDS Return
Taxpayers having a TAN (Tax Deduction and Collection Account Number) must file TDS return every quarter. If a taxpayer fails to file TDS return on or before the due date, then a fine of Rs.200 per day is applicable until the day to which the delay in filing of TDS return continues. The amount of penalty for late filing of TDS return can however not exceed the amount of TDS due.
Penalty for Failure to Comply with Income Tax Notice
As per the Income Tax Act, an Income Tax Assessing Office can issue a notice asking the taxpayer to file an income tax return or produce documents pertaining to income tax assessment or require the taxpayer to furnish in writing any information or require the taxpayer to get the account audited or re-audited by a Chartered Accountant. If a taxpayer fails to comply with such a notice or request by an Income Tax Officer, then the taxpayer shall be liable for a penalty of Rs.10,000 for each instance of failure to comply.
Penalty for Concealing Income or Furnishing Wrong Information
If a taxpayer tries to reduce his tax liability by concealing income or by furnishing inaccurate particulars of income to the income tax department, then a penalty can be levied by the Assessing Officer. Penalty for such contravention could be 100% to 300% of the tax evaded or sought to be evaded by concealing his income or furnishing inaccurate particulars of income.
Penalty for Not Maintaining Book of Accounts
As per the Income-tax Act, a taxpayer is required to maintain the books of account. If the taxpayer fails to maintain book of account, then a penalty of upto Rs.25000 is applicable.
Penalty for Not Maintaining Record of International or Specified Domestic Transaction
As per the Income Tax Act, a taxpayer is required to main information and documents pertaining to an international transaction or specified domestic transaction for a period of 8 years from the end of the relevant assessment year. In case a taxpayer does not maintain such information or documents, then a penalty equal to 2% of the value of each international transaction or specified domestic transaction entered into by the taxpayer is applicable.
Penalty on Undisclosed Income Found in Income Tax Search
Income tax authorities can conduct search of the premises of a taxpayer to unearth undisclosed income. If a search is initiated by the income tax department and undisclosed income is unearthed in the search, then penalty can be levied. The following fines are leviable for undisclosed income found in a income tax search:
10% of undisclosed income of the specified previous year if taxpayer admits the undisclosed income, substantiates the manner in which such income was derived, and on or before the specified date pays the tax, together with interest thereon and furnishes the return of income for the specified year declaring such undisclosed income.
20% of undisclosed income of the specified previous year if taxpayer does not admit the undisclosed income, but on or before the specified date declares such income in the return of income furnished for the specified previous year and pays the tax, together with interest thereon.
Minimum 30% and maximum 90% of undisclosed income of the specified previous year, if it is not covered by (1) or (2) above.
Penalty for Not Getting Accounts Audited
If a taxpayer fails to get the accounts audited or furnish a report of audit when its a requirement, then a penalty is leviable. The penalty for not getting accounts audited could be 1.5% of total sales or Rs.1,50,000 whichever is less.
Penalty for Not Furnishing Report from an Accountant
Taxpayers entering into an international transaction or specified domestic transaction are required to obtain a report from a Chartered Accountant in the prescribed form and furnish it to the income tax department. If a taxpayer fails to do so, then a penalty of Rs.1,00,000 is leviable.
Penalty for Failure to Deduct Tax at Source
If a person who is required to deduct tax at source fails to deduct tax, wholly or partly or failure to pay wholly or partly, then the taxpayer can be held liable to pay a penalty. Penalty for failure to deduct tax at source is an amount equal to tax not deducted or tax not paid.
Penalty for Failure to Pay Tax from Winning of Lottery or Game
Any person responsible for making payment to a person winning a lottery or crossword puzzle or card game or any other game for an amount exceeding Rs.10,000 is responsible for deducting income tax while making payment of the winning amount. If any person fails to pay whole or part of the tax, then such person shall be liable to pay a penalty amount equal to the amount of tax not paid.
Penalty for Not Collection Tax at Source
As per the income tax act, tax must be collected at source by the person receiving payment in respect of certain specified items. If such a person fails to collect tax at source, then a penalty equal to tax not collected is applicable.
Penalty for Accepting Certain Loans or Deposits in Cash
As per the Income Tax Act, no person shall take or accept loan or deposit exceeding an amount of Rs.20000 by any mode other than an account payee cheque or account payee demand draft or use the Banks electronic fund clearing system. Contravention to this rule can attract a penalty equal to the loan or deposit taken or accepted.
Penalty for Repayment of Certain Loans or Deposits in Cash
As per the Income Tax Act, no person can repay a loan or deposit or specified advance exceeding Rs.20,000 by any other mode other than an account payee cheque or account payee demand draft or use the Banks electronic fund clearing system. Contravention to this rule can attract a penalty equal to the amount of loan or deposit or specified advance that was repaid.
Penalty for Delay in Filing Income Tax Return
If a taxpayer fails to furnish an income tax return before the end of the relevant assessment year on the income tax return due date, then the Assessing Officer can levy a penalty of Rs.5000.
Penalty for Not Filing Statement of Financial Transaction or Annual Information Return (AIR)
If a taxpayer fails to file the statement of financial transaction or Annual information Return (AIR), then a penalty of Rs.100 per day of default is applicable until the default continues. Further, the income tax authorities can issue a notice to the taxpayer directing the taxpayer to furnish the return within 30 days from date of service of notice. If the taxpayer fails to furnish the return within the specified time, then a penalty of Rs.500 per day would be levied.
Penalty for Filing Inaccurate Statement of Financial Transaction
If a person files an inaccurate statement of financial transaction knowingly, then the income tax authority may levy a penalty of upto Rs.50,000.
Penalty for Failure to File TDS Return for More Than One Year
If a person fails to file the statement of tax deducted/collected at source i.e. TDS/TCS return for more than one year, then the minimum penalty could be Rs. 10,000 which can go upto Rs. 1,00,000. This penalty will be in addition to the daily penalty of Rs.100 for late filing of TDS return.
Penalty for Failure to Cooperate with Income Tax Authorities
Income tax authorities may require information from a person or request answers to question raised by them or may require a person to sign statements or may issue summons for attendance. Failure to comply with these directions can attract a penalty of upto Rs.10,000 for each instance of non-compliance.
Penalty for Failure to Comply with Provisions Relating to PAN
The Income Tax Act provides penalty in case of default by the taxpayer in complying with the provisions relating to PAN or knowingly quoting incorrect PAN. PAN is required to be quoted by the taxpayer in certain prescribed financial transactions and contravention to this could attract a penalty of upto Rs.10,000.
Failure to Comply With Provisions relating to Tax Deduction Account Number (TAN)
Every person deducting tax at source or collecting tax at source has to obtain the Tax Deduction Account Number or TAN Number. Penalty for not obtaining TAN Number or quoting incorrect TAN Number could attract a penalty of Rs.10,000.