Important Income Tax Penalties under Income Tax Act, 1961
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.
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.
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.
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.
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.
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.
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.
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.
The author of above article is Shruti Jain.
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