ITR 2024: Filing false claims to attract Income Tax penalty

Income Tax Penalty: As per income tax rules, misreporting income is against the law and bound to attract heavy penalties. Section 270 of the Income Tax Act was amended post demonetisation to impose heavy penalties for misreporting and under-reporting of income by taxpayers.

When claiming tax deductions and exemptions on your income tax return (ITR), during the preparation of your ITR, the Income Tax Department may request documentation of the tax exemptions and deductions you have claimed, either for the current year or prior years.

The income tax authorities find fraudulent tax refund claims made by taxpayers, including business employees, every year. The department has sent those taxpayers notices because it received these fictitious refund claims. In order to submit fraudulent refund claims, taxpayers frequently report losses under the false pretense of income from residential property.

Read more:- Income Tax: Know these 5 key points before filing ITR early

Assessees who fraudulently claim tax refunds by understating their income or creating losses in order to reduce their taxable income risk legal repercussions. Income tax laws state that failing to report income is illegal and will result in severe penalties. Following the demonetization of currency, the Income Tax Act’s Section 270 amended to impose severe penalties on taxpayers who fail to disclose or misreport their income.

Section 270A of Income tax Act.

Under Section 270A of the Income Tax Act, individuals who underreport or misreport their income may face penalties as determined by an assessing officer (AO), a commissioner (appeals), a principal commissioner, or a commissioner. These penalties can range from 50% to 200%. Enacted in the 2016 budget, this provision became effective in FY2016-17.

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Under Reporting of Income Under Section 270A.

Under-reporting occurs when an assessee gives the income tax department a smaller disclosure than their actual income. This occurs frequently for a variety of reasons, including inaccurate income calculations or inadequate record-keeping.

  • If you fail to report or file any income—or a portion of it in the form your income tax return or books of accounts.
  • When the income reported in the ITR is lower than the income assessed by the Income Tax (I-T) Department.
  • When the income assessed by the I-T Department exceeds the basic exemption limit but you do not file a return of income.
  • The Income Tax Department is considered to have computed the income if the actual income exceeds the amount declared or computed under special tax sections (like 115JB or 115JC).
  • When the assessed or reassessed income reduces a loss or turns a loss into income, it is regarded as under-reporting of income.

Penalty Under Section 270A of the Income Tax Act:

When it is confirmed by the assessing officer that there is an under-reporting or mis-reporting of income, and a penalty under Section 270A of the Income Tax Act is imposed, the penalty provisions are as follows:

On under-reporting of income: The penalty imposed is equal to 50% of the tax due on the under-reported income.

On misreporting income: The penalty shall be equal to 200% of the tax due on the misreported income.

Taxpayers must note that the penalty imposed under Section 270A will be in addition to the tax due on under-reported or misreported income. The penalty for misreporting earnings (200%) is applied when an assessee deliberately gives false or misleading information.

Read more:- ITR: 7 common mistakes to avoid for a easy income tax filing
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