Income Tax Taxation

A Complete List of Penalties under the Income Tax Act

A taxpayer must pay the taxes timely and also filing of the income tax returns assures that the Government has the money for public welfare and public benefit at any point of time. To ensure and also to prevent any default in paying taxes or disclosing of any information, there are several penalties prescribed under the Income Tax Act. Penalties under the Income Tax Act are imposed on an assessee for non-compliance. Under the Income Tax Act, 1961 penalties are levied for several defaults committed by the taxpayer. There are some obligatory penalties, whereas some penalties are at the discretion of the tax authorities. In this article, we will cover the provisions relating various penalties under the Income-tax Act, 1961. In this article, we will discuss the various penalties under the Income Tax Act.

Penalties under the Income Tax Act, for default in making payment of Self Assessment Tax

• According to section 140A(1) of the Income-tax Act, any tax which is due after allowing the credit for TDS, advance tax, etc. together with interest and fee should be paid before filing the return of income.
• The tax paid according to section 140A (1) is called ‘self-assessment tax’.
• As prescribed in section 140A(3), in case a person fails to pay the self-assessment tax either wholly or partly then he will be treated as an assessee in default in respect of the unpaid amount.
• As per section 221(1), if a taxpayer is considered to be in default, then he shall be held liable to pay the penalty of such amount as imposed by the Assessing Officer. And in case the default continues, and the taxpayer will pay such amount as directed by the assessing officer. However, the total amount of penalty cannot exceed the tax amount in arrears.
• Before charging any penalty under section 221(1), an opportunity shall be provided to the taxpayer of being heard. If the taxpayer succeeds in proving that the default made was for a good and sufficient reason, no penalty will be charged.
• If the taxpayer fails to file tax returns within due date as prescribed under section 139(1) then as per section 234F, the individual will be required to pay a fee of :
  • a) Rs. 5000 if the return is filed on or before December 31 of the assessment year.
  • b) Rs. 10,000 in any other case.

In case the total income of the individual does not exceed Rs. 5 lakh, then penalty fee payable will be Rs. 1000.

Penalty for default in making payment of tax

• According to section 220(1), the taxpayer on receiving demand notice under section 156 of the Act, for payment of tax (other than advance tax) shall pay the amount within a period of 30 days.
• The penalty prescribed under section 221(1) is a general penalty and can be levied in all the cases in which the taxpayer is treated as an assessee in default.
•  Before charging penalty as the taxpayer shall get a reasonable opportunity of being heard.

Late filing fees for delay in filing the TDS/TCS statement

As mentioned in section 200(3) every person is liable to deduct tax at source and must submit a statement in respect of tax deducted by him, i.e. TDS return.

 As per the provision to section 206C (3, every person who is liable to collect tax at source must furnish a statement in respect of the tax levied by him, i.e. TCS return. 

Penalty for late filing of TDS/TCS return is specified in Section 234E –According to this section in case, a person fails to file TDS/TCS Return shall be liable to pay a sum of Rs. 200 for each day during which the failure continues.

However, the amount of late fees shall not exceed the amount of TDS or TCS return to be paid.

Penalties under the Income Tax Act, for default in furnishing return of income

If the assessee who is required to file income tax returns fails to file it within the due date as per clause under section 139(1), then according to section 234F, he will be fined:

1. Rs.5000, in case the return is filed on or before December 31 of the assessment year.
2. Rs.10,000 in any case other than this.
3. In any case, if the total income of an individual does not exceed Rs. 5 lakh then the payable fee amount is Rs.1000.

Penalty for failure to comply with a notice issued under section 142(1) or 143(2) or direction for audit under section 142(2A)

Section 272A levies a penalty of Rs. Ten thousand for failure to follow the notice issued to the taxpayer as per Section 142(1) or Section 143(2) or section 142(2A).

As per section 142(1), the Assessing Officer can issue a notice asking the taxpayer to file returns or produce any documents as and when required.

According to Section 142(2A), an assessee needs to conduct a special audit.

Section 143(2) –the AO will issue a notice before conducting scrutiny assessment.

Penalty for underreporting and misreporting of income

The taxpayer many times reduces his tax liability by underreporting or misreporting of income. In such types of cases, as per Section 270A, a penalty will be levied on the taxpayer. The rate of penalty charged shall be 50% of the payable tax on under-reported income.

However, if the under-reporting of income results from misreporting of income, the taxpayer shall be held liable for a penalty at the rate of 200% of the tax payable on the misreported income.

Misreporting of Income

The following cases are considered as misreporting of income:

 1. Any type of Misrepresentation or suppression of facts

2. Failure to maintain the investments in the books of account

 3. The claim of expenses not validated by any evidence

 4. Making any false entry in the books of account

 5. Failure to proof any receipt in books of account having a bearing on total income

 6. Failure to show any international transaction in books of accounts.

Penalty for failure to keep, maintain, or retain books of account, documents, etc., as per section 44AA

A taxpayer as per Income Tax Act, 1961 is required to maintain the books of account, as mentioned in section 44AA.

 In case of any failure to maintain the books of accounts by the taxpayer a penalty of Rs, 25,000 will be charged as per Section 271A.

Penalty for Failure to Keep and Maintain Information and Document Related to International Transaction or Specified Domestic Transaction

Section 92D specifies that every person getting into an international transaction or specified domestic transaction shall keep and maintain such information and documents as may be prescribed in this regard under rule 10D.

The penalty is levied as per section 271AA is attracted in the case of any of the following failures made by the taxpayer:

1. If an individual fails to maintain information and documents related to the international transaction or specified domestic transaction as per `section 92D read with rule 10D.
2.  If the taxpayer fails to report the international transaction or specified domestic transaction.
3. Maintaining and furnishing incorrect information related to the international transaction or specified domestic transaction.

The Penalty amount charged shall be a sum equal to 2% of the value of each international transaction or specified domestic transaction made by the taxpayer.

 Penalty in Case of Search

The tax authorities to unearth the undisclosed income generally conduct a search at the premises of the taxpayer. Section 132 provides the situations in which the tax authorities can instigate a search. Penalty for this default has been explained under section 271AAB.

Penalty in case of Income from Undisclosed Sources

The AO makes addition to the taxpayers income as per sections 68, 69, 69A, 69B, 69C or Section 69D.In case the taxpayer fails to explain the nature and source of his income will be charged penalty under Section 271AAC of the Income Tax Act.

The AO will levy penalty at the rate of 10% of the tax payable under section 115BBE if any addition is made under section 68, 69, 69A, 69B, 69C and section 69D.

Failure to get accounts audited or furnished a report of audit as per section 44AB

• According to Section 44AB the accounts of the taxpayer are to be audited. In case a taxpayer fails to audit his accounts, then he can be held liable for penalty under section 271B.
• Penalty under section 271B shall be charged for failure to get the accounts audited or failure to furnish a report of audit as required under section 44AB.
• Penalty shall be one-half per cent of total sales, turnover or gross receipts, etc., or Rs. 1, 50,000, whichever is less.

Penalty for failure to provide a Report from an Accountant as per Section 92E Section 92E

• According to Section 92E, a report from a chartered accountant must be presented by every person getting into an international transaction or specified domestic transaction. In case the taxpayer fails to provide the report as required, then he shall be liable to pay penalty under section 271BA.
• Penalty prescribed under section 271BA for failure to provide a report from the chartered accountant Rs. 1,00,000.

Penalty for Failure to Pay Tax With respect to Winning from lottery or Crossword Puzzle

• If any taxpayer fails to pay whole or part of the tax as per section 194B than, such person shall be liable to pay the penalty under section 271C of an amount equal to tax not paid.
• Penalty for failure to collect tax at source
• Section 206C of the Act provides that certain items of which tax is to be collected at source by the person receiving payment in respect of certain specified items.
• In case the person who is required to collect tax at source fails to collect the tax, he shall be liable to pay the penalty as per section 271CA. The penalty amount shall be equal to tax not collected.

Accepting Certain Loans/ Deposits/Specified sum in contravention of provisions of section 269SS

• As per Section 269SS, no person shall take or accept any loan/deposit/specified sum exceeding Rs. 20,000 which is done by payee cheque or account payee demand draft or use of electricity clearing system through a bank account or through such other electronic modes as may be prescribed.
• Specified sum here means any sum of money received as advance or otherwise, with respect to the transfer of an immovable property, whether or not the transfer takes place.
• Breaching the provisions of section 269SS will attract penalty under section 271D.
• Penalty as per proviso to section 271D shall be levied of an amount equal to loan or deposit taken or accepted.

Penalty for not providing the facility for accepting payment through prescribed electronic modes of payment

Section 269SU has been inserted by the Finance (No.2) Act, 2019. As per this section every person engaged in business shall accept online payments if gross receipts for such business exceed Rs. 50 crore during the immediate preceding year.

Penalty of Rs. 5,000 will be charged if payment is not accepted by digital mode as per section 271DB.

Failure to furnish statement of financial transaction or reportable account (previously called as ‘Annual Information Return (AIR)’) as required under section 285BA (1)

 Non-filing of statement of financial transaction or reportable account will attract penalty under section 271FA. Penalty shall be charged at Rs. 500 per day of default.

Penalty for failure to comply with provisions of section 133B

The tax authorities can enter the place of business of the assesee to collect details as required. If the taxpayer fails to comply with the provisions of section 133B, the penalty shall be charged under Section 272AA (1) up to Rs. 1000.

Conclusion

The income tax returns or TDS/TCS must be filed within the due date. Failure to comply with the laws mentioned in this article leads to various penalties as per severity of the default. The Indian Income Tax Act lays down all the laws related to the payment and filing of taxes in India is an essential piece of legislation. Penalties under the Income Tax Act, for default in furnishing return of income.