Important Income Tax Penalties under Income Tax Act, 1961

Income tax

Income Tax Act,1961 lays down the number of penalties for the assessee who violate any section or rule prescribed under the Act. It ensures that there will be timely collection of tax by the government so that government will have consistent revenue for the welfare of public. Also assessee will not default regarding payment of tax to avoid penalties. If assessee fails to fulfill the requirements then assessee has to pay the penalties/fines imposed by the tax officer on the assessee. Any default in payment of fines /penalties will lead to further proceedings, which will be suffered by the assessee. There are many penalties which are given under the Income Tax Act e.g. If assessee fails to pay advance tax liability, filing of ITR, etc.

Here are some cases in which assesses has to pay penalties in case of default :

1 Default in payment of Income Tax liability

If any taxpayer fails to pay tax amount then a notice will be send to a taxpayer under section 156 by the department and a period of 30 days will be allowed to pay tax. If taxpayer doesn’t pay tax within 30 days then the taxpayer will be liable to pay the penalty imposed by assessing officer. The amount of penalty will be determined by the Assessing Officer but it shall not exceed the tax liability.

Cash Transaction Limit in India – cash payment and cash receipt

2 Under reporting or misreporting of income

Under reporting of income means when income declared is lower than the actual income earned. If assessing officer found that reported income is less than the income earned by the assessee then assessee will be liable to pay penalty under section 270A. The amount of penalty will be 50% of tax liability on the under reporting income.

200% penalty of tax liability is payable, if under reporting results from misreporting of income.

Penalty on non-linking of PAN with Aadhaar

3 Failure to maintain books of account and other required documents

As per section 44AA the taxpayers are required to maintain books of accounts. If a taxpayer doesn’t maintain proper book of accounts then such taxpayer would be liable to pay penalty under section 271A. The amount of penalty will be Rs. 25,000.

If the taxpayer has been entered into an international transactions and it requires to maintain the document, then assessee has an obligation to maintain the books. In case of default, a notice will be send to taxpayer. If taxpayer doesn’t maintain books of account within 30 days of notice sent then assessee will be liable to pay penalty under section 271AA. The amount of penalty will be 2% of value of international transactions or specified domestic transactions.

Vivad se Vishwas -Tax Amnesty Scheme: What, When, How, For Whom.

4 Fails to get account audited and audit report

An assesses who required to get his account audited as per section 44AB, should mandatorily get his account audited as per law. If any default regarding audit has been paid then assessee will be Liable to pay the penalty Under section 271B. Also if audit has been conducted but assessee does not furnish audit report, penalty will still be applicable.

The amount of penalty will be Rs. 1,50,000 or 0.5% of the total sales /turnover /gross receipts whichever is less.

New Income Tax Rates & existing Income Tax Rates : Quick comparison

5 Penalty for not deducting/collecting tax deducted at source(TDS) / tax collected at source(TCS)

If any assessee who is liable to deduct/collect TDS/TCS as per the relevant sections of income tax, and fails to do the same, then assessee will be liable for the penalty Under section 271C. The amount of penalty will be the amount of TDS/TCS not deducted/collected.

If assessee fails to furnish the TDS/TCS statement or furnish the incorrect statement, then taxpayer will be liable to pay the amount of minimum 10,000 and maximum 1,00,000.

Difference between Section 44AD, 44ADA and 44AE of Income Tax Act

6 Penalty for using the mode other than account payee cheque /ECS / draft

Under Section 269SS, loans or deposits exceeding Rs 20,000 should be accepted only through account payee cheques, demand drafts or bank electronic clearing system. If any other mode of accepting loans or deposits is used, penalty would be levied under section 271D. The amount of penalty would be the amount of loan or deposit accepted by the tax-payer. This rule is to avoid black money in the economy.

Income Tax on selling of Shares and Securities

7 Penalties for false entry in Income Tax Act

If an assessing officer finds out that the information or books of account, which is provided by the assessee includes :

  • forged documents such as a fake invoice or misleading evidence
  • an false entry of receipt of good & service or supply of invoices
  • an receipt of good or service or supply invoices from a person who doesn’t even exist
  • an omitted information or entry which is important for the purpose of tax

If assessing officer is able to find the false entry then the taxpayer will be liable to pay the penalty of the amount of false entry or omitted entry.

10 Income Tax Saving Tips for AY 2020-21 : Tax Planning

8 Fails to submit statements / information under Income Tax Act

If assessee fails to submit the financial statement or reportable account then assessee will be liable to pay the penalty of Rs. 500 for each day till the default continues. And if the failure is in response to a notice to report on specified financial transaction, the penalty shall be ₹1,000 for each day of failure.

Income Tax Forum

The author of above article is Shruti Jain.

Disclaimer:The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon. 
Also, and its members do not accept any liability, obligation or responsibility for author’s article and understanding of user.

For Advertising with us-

Tags: blog

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Fill out this field
Fill out this field
Please enter a valid email address.
You need to agree with the terms to proceed