Income tax penalty: Important details taxpayers must know

There are several upsides to filing your income tax returns on time. Those who fail to file their tax returns or pay taxes on time face several fines and even legal action, as outlined in the Income Tax Act of 1961. Some of these regulations are required by law, while others may be imposed at the discretion of the relevant tax authority. Anyone who falls under the purview of the Income Tax Act, including people, businesses, and other organisations, must adhere to these regulations.

It is the responsibility of every tax filer with income to pay their fair share of income tax. Income tax penalties are assessed if the taxpayer makes any mistakes or commits any fraud in the payment of tax or any other tax-related problems. The Income Tax Act has several different penalties for different taxpayer infractions. An income tax penalty is levied when a taxpayer is found to violate the Income Tax Act’s regulations.

Income tax penalty: Fines issued by the Income tax department

Self-employment tax incurred penalty for failure to file

According to the Income Tax Act, while determining the income tax owed, a credit for advance tax must be considered. Other taxes that need to be included are those calculated by self-assessment and Tax Deducted at Source (TDS). Income tax returns should only be filed once the tax has been paid.

In India, this kind of tax payment is known as self-assessment tax. A taxpayer will be considered a defaulter if they fail to pay any amount due in self-assessment tax or interest. An assessing officer may, however, levy a fine of any amount up to the unpaid tax balance. A penalty may be assessed as per the Income Tax Act for failure to self-assess tax. For tax debt, the liability should never exceed the whole amount owed.

Late TDS return filing fees

Filing a TDS return is mandatory for taxpayers with a Tax Deduction and Collection Account Number [TAN] every three months. A penalty of Rs 200 per day will be assessed against a taxpayer who fails to submit their TDS return by the specified deadline. Each day that the assessee is in default, the penalties should increase. The late filing penalty for a TDS return should not be more than the total amount of TDS that was missed.

Refusing to pay the tax 

If the Income Tax Department issues a tax demand notice, the tax is due within 30 days after the notification’s delivery. Section 221 defines default as the failure to pay tax obligations when due (1). The assessing officer will determine the amount of the penalty, which cannot be more than the amount of back taxes owed.

Failure to record all income or providing false income information

Failure to record all income or providing false income information is punishable by law under Section 270A (1). The penalty amount is equivalent to 50% of the amount of underreported or unpaid taxes. The penalty for willful underreporting of income may go up to 200% of the amount that should have been disclosed or that is owed in taxes.

Consequences of ignoring warning

An income tax assessing officer may request a taxpayer submit an income tax return by issuing a notice using the authority granted to them by the Income Tax Act. The officer may request income tax records. In case of possible noncompliance with a notification from an income tax officer, a penalty of Rs 10,000 per incident of noncompliance must be assessed to the taxpayer. The officer may ask for any information in writing from the taxpayer. The taxpayer has to have the books checked over or checked again by a chartered accountant.

Concealing income or fringe benefits or furnishing inaccurate details

Under Section 271(1)(c), a penalty of 100% to 300% of the tax avoided or intended to be evaded is imposed in addition to the tax owed if income or a fringe benefit is concealed or false information is provided.

Specific transactions that carry a penalty if records are not kept

A taxpayer has an 8-year record-keeping obligation for any documents or information related to overseas transactions or the designated domestic transaction. If a taxpayer fails to keep the requisite records, they will be subject to a penalty of 2% of the total value of each transaction.

Fees for incomplete or missing account books

A taxpayer is required to keep books of account under the Income Tax Act. A fine of up to Rs 25,000 may be imposed if the taxpayer does not keep financial records.

Recovering hidden cash through a tax audit

If the income tax authorities conduct a search of the taxpayer’s residences and discover previously unreported income, the taxpayer will be subject to the following fines:

• If the search was conducted before January 7, 2012, the penalty under Section 271AAA is 10% of the unreported income.

For searches that began on or after January 7, 2012:

• If the assessee accepts the disguised revenue and confirms how it was acquired, the assessee will be refunded 10% of the undisclosed income for the prior year stated. Assessee is required to report this income and pay tax on it by the due date, plus interest.
• If the assessee does not admit the unreported income, the penalty is 20% of the amount for the preceding year that was not stated. The assessee must pay tax and interest by the due date and must submit a return detailing the previously unreported income.
• Depending on the circumstances, the assessee must pay 30% to 90% of the unreported income if the situation does not fall into one of the first two categories.

Accounts that are not audited face a fine

Sometimes, taxpayers forget to have their books audited or to submit an audit report. As a result, a fine may be imposed. In such circumstances, the fine is greater than 1.5% of gross sales or Rs 1,50,000.

Casual income tax non-payment penalty

Winning the lottery, a crossword puzzle, a card game, or any other game is a casual source of money. The total value of the reward might be more than Rs 10,000. If this is the case, the business owner or management must withhold applicable income taxes from the winnings before making the distribution. When an assessee fails to pay their tax bill on time, they will be subject to a penalty equivalent to the amount of tax overdue.

Non-payment of tax after winning the lottery

If the prize money you earn from a lottery or other game is more than Rs 10,000, the government may take a portion of it as tax. If the tax is not paid, a penalty will be assessed equal to the amount that was not paid.

Non-cooperation with the income tax authority

Failure to cooperate with the income tax authority in cases where the income tax authority has questions for the taxpayer, the taxpayer is obligated to respond to those questions, provide the requested information, sign the requested documents, or otherwise comply with the income tax authority’s requests. A fine of Rs 10,000 per infraction under each of 272A’s subsections will be assessed for failure to comply with any of them.

Cash-based financial transactions carry a tax penalty

At times, it is desirable to borrow money from a friend or a formal lending agency. A deposit or loan of up to Rs 20,000 is acceptable. There would be a fee if the payment was received in a form other than an account payee check. Any violation of this provision may result in a fine that is proportional to the amount of the loaned or deposited funds.

Income tax return late filing penalty

The assessee may fail to furnish the income tax return on or before the relevant due date. In such cases, the assessing officer can levy a penalty. Up to Rs 5,000 may be charged as a penalty. A taxpayer may fail to file the statement of financial transaction or Annual Information Return (AIR). A penalty of Rs 100 per day will be assessed in such circumstances.

The fine has to keep accruing until the default is fixed. The IRS or state taxing authority may issue a “show cause” notice. The notice shall direct the taxpayer to furnish the return within 30 days. The 30-day period will begin counting down on the day after the notification was given.

FAQs