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Some Common Penalties under Income-Tax Act, 1961

Ashish M. Shaji

| Updated: Jun 09, 2021 | Category: Income Tax

Penalties under Income Tax

An assessee who commits an offence under Income Tax Act 1961 shall be subject to penalty. The penalty shall be an additional amount levied and is different from the tax payable. The penalty is imposed based upon the law at the time offence is committed and not as it stands in the FY for which assessment is being made. In this article, we shall discuss certain common penalties under Income-Tax Act.

Penalties under Income-Tax Act

Below we have discussed certain offences and their penalties.

Default in making payment of Tax

According to Section 221 (1), if a taxpayer is treated as an assessee in default, then such taxpayer will be liable to pay penalty of an amount as the assessing officer may impose. However, the penalty cannot exceed the amount of tax in arrears. Hence this penalty is a general penalty, and it can be levied in cases where the taxpayer is treated as assessee in default.

Failure to file return in respect of the TDS/TCS within the prescribed time

According to section 234E, in case a person fails to file TDS return on or before the due date, then such a person will be liable to pay an amount of 200 rupees for each day during which failure continues.

Default in furnishing return of income

In case an assessee who must furnish return of income fails to do so within prescribed due date under section 139 (1), then he will have to pay-

  • 5000 rupees if return is furnished on or before 31st Dec of the assessment year;
  • 10000 rupees in any other case.

However, in case the total income of the person doesn’t exceed 5 lakh rupees, then the fee payable will be 1000 rupees.

Failure to comply with the notice issued under Section 142 (1) or 143 (2) or direction for audit under section 142(2A)

Penalties under Income-Tax Act will be levied if a taxpayer fails to comply with the notice issued to him under the Section 142 (1) or section 143 (2) or if he fails to comply with direction issued under the Section 142(2A).

In case the taxpayer fails to comply with the notice issued to such taxpayer under section 142 (1) or section 143 (2) or fails to comply with the direction issued under Section 142 (2A), then such taxpayer shall be liable to a penalty of 10k rupees for each failure.

 Under-reporting and misreporting of income

There are times when a taxpayer may try to reduce his tax liability by underreporting or misreporting of income. In that case, the taxpayer will be held liable for penalty. The penalty rate will be 50% of the tax payable on under-reported income. However, if under-reporting of income results from misreporting of income, the taxpayer will be liable for a penalty at the rate of 200% of the tax payable on the misreported income.

Failure to keep, maintain/retain books of account, documents as required under Section 44AA

Under Income Tax Act[1], a taxpayer must maintain the books of account according to the provisions of Section 44AA. In case the taxpayer doesn’t maintain the books of account, then he shall be liable to pay penalty under Section 271A of 25k rupees.

Non-maintenance of book of international transactions or specified domestic transactions

Every person entering into international transaction or specified domestic transaction should keep and maintain such information and documents as prescribed in this regard under Rule 10D. The taxpayer should furnish such accounts in 30 days if demanded by the Income tax department.

In case of default, penalty of, sum equal to 2% of value of each international transaction or specified domestic transaction entered into by a taxpayer, will be levied.

Income from undisclosed sources

The assessing officer can make addition to the assessee’s income under Sections 68, 69, 69A, 69B, 69C or 69D in case the assessee fails to explain the nature and source of the income.

Penalty at the rate of 10percent of the tax payable under Section 115BBE may be levied if any addition is made under the aforementioned sections.

Failure to get accounts audited or furnish report as required under Section 44AB

As per Section 44AB, when the accounts of the taxpayer is to be audited, and if a taxpayer fails to get accounts audited, then he can be held liable for penalties under Income-Tax Act (Section 271B). Penalty shall be levied of one-half % of total sales, turnover or gross receipts etc. or 150000 rupees, whichever is less.

Failure to furnish a report from accountant required under Section 92E

If a taxpayer fails to furnish a report from an accountant to be provided by persons entering into the international transaction or specified domestic transaction under Section 92E, a penalty of 1 lakh rupees shall be levied.

Penalties under Income-Tax Act- Section 272A (2)

Penalty under Section 272A (2) shall be levied in case of the following defaults:

  • Failure to furnish the requisite information in respect of the securities;
  • Failure to give notice of discontinuation of business or profession;
  • Failure to furnish timely returns, statements or certificate, allow inspection etc., under Sections-133, 134, 139(4A), 139(4C), 192(2C), 197A, 203, 206, 206C, 206C (1A) & 285B;
  • Failure to deduct & pay taxes under Section 226 (2);
  • Failure to file a copy of prescribed statement within the prescribed time;
  • Failure to deliver or cause to be delivered statement under Section 200 (2A) or Section 206 C (3A) within the prescribed time.

In the above cases, penalty shall be levied at 100 rupees for each day during which the default continues. In case of default under Section 200 (2A), 200 (3), 206, 206C, 206C (3) and 206C (3A), the quantum of penalty will not go beyond the amount of tax deductible or collectible.

Conclusion

These were some of the common penalties under Income-Tax Act 1961. Every taxpayer should be aware of the offences recognised by the IT Act and must follow all compliances in order to be safe from penalties. The principal commissioner or the commissioner of the Income Tax has the authority to waive or reduce any penalty under the said Act.

Read our article:What is Wealth Tax in India & why was it abolished?

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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