Summary of Penalties Under the Income Tax Act

Timely and consistent tax payment and return filing ensure the government has money for public welfare. To ensure that taxpayers do not default in paying taxes or disclosing information in the returns/statements, several penalties are prescribed under the Act. A penalty or punishment is imposed on the taxpayers for being non-compliant. Let’s look at some of the important and most common penalties.

Default in Making Payment of Tax

If a taxpayer fails to pay tax, TDS, or TCS, the tax officer will determine the penalty leviable. However, the amount will not exceed the amount of tax in arrears.

Failure to Maintain Books of Accounts and Other Documents

• If a taxpayer fails to keep, maintain, or retain books of accounts as required by the Act, the penalty leviable is ₹25,000.
• In case the taxpayer is a person who has entered into an international transaction, the penalty will be 2% of the value of such international transactions.

Audit and Audit Report

• If the taxpayer fails to get his accounts audited, obtain audit report, or furnish a report of such auditor, a penalty will be leviable at lower of ₹1,50,000 or 0.5% of the total turnover.
• In case the taxpayer fails to furnish audit report related to international transaction, a penalty of ₹1,00,000 will be payable.

TDS/TCS

• Where a person fails to deduct tax at source, he will be liable to pay a penalty equal to the amount of tax which he has failed to deduct/ pay.
• Where a person fails to collect tax at source, he will be liable to pay a penalty equal to the amount of tax which he has failed to collect.
• Failure to furnish TDS/TCS statement or furnishing incorrect statements, shall attract a penalty ranging from ₹10,000 to ₹1,00,000
• Failure to furnish information/ furnishing inaccurate information related to TDS deduction related regarding Non residents shall attract a penalty of ₹1,00,000

Penalty for Using Modes Other Than Account Payee Cheque/Draft/ ECS for Acceptance/Repayment of Loans

• If a person takes/accepts loan/ deposit except by way of Account payee cheque/account payee draft/ ECS, and if the aggregate amount exceeds ₹20,000, he shall be liable to pay a penalty of an amount equal to such loan/ deposit.
• If, an amount of ₹2,00,000 or more is received in aggregate from a person in a day/ single transaction/ relating to one event, a penalty equal to such amount will be payable.
• If a person repays a loan/ deposit and the amount so repaid exceeds ₹20,000 by way other than Account payee cheque/ account payee draft/ ECS, then a penalty equal to such loan/ deposit shall be payable.

Refer analysis of Section 269SS and Section 269T. 

Under-reporting/Misreporting of Income

• If the income assessed/ re-assessed exceeds the income declared by the taxpayer, or in cases where a return has not been filed and income exceeds the basic exemption limit, a penalty of 50% of tax payable on such under-reported income shall be levied. For details, refer to. 
• 200% of the tax is payable if under-reporting results from misreporting of income.

Penalty for False Entry such as Fake Invoices

In case the tax officer finds that the books of accounts provided by the taxpayer in the proceeding contain any of the following:

• forged or falsified documents such as a fake invoice or a false documentary evidence
• an invoice in respect of the supply of goods or services without the actual supply 
• an invoice of supply from a person who does not exist
• an omission of any entry which is relevant for computation of total income.

Then, the assessee might have to pay a penalty of the amount equal to sum of such false or omitted entries.

Undisclosed Income

• Where the income determined includes undisclosed income, a penalty @10% is payable. However, no such penalty will be leviable, if such income was included in the return and tax was paid before the end of the relevant previous year.
• Where Undisclosed income is found during a search initiated on/ after December 15, 2016,
  • If undisclosed income is admitted during the Search, and the assessee pays tax and interest and files a return, a penalty of 30% of such undisclosed income is payable.
  • In all other cases, penalty is leviable @ 60%

Failure to Furnish Statements/Information

• Failure to furnish a statement of financial transaction or reportable account shall attract a penalty of ₹500 for each day of failure until the expiry of the period in notice. If the failure continues after the period provided in notice, the penalty shall be ₹1,000 for each day of failure.
• A penalty of ₹50,000 shall be attracted for furnishing inaccurate statements of a financial transaction/ reportable account. Further, a penalty of ₹5,000 shall be leviable for every reportable account.  
• Failure of an eligible investment fund to furnish any statement / information/ documents within the prescribed time shall attract a penalty of ₹5,00,000
• Failure to furnish any information/ document in relation to international transaction shall attract a penalty of 2% of the value of such transaction
• If a report/ certificate is required to be furnished by an Accountant/ Merchant Banker/ Registered Valuer and such information is found to be incorrect, a penalty of ₹10,000 for each incorrect report/ information is payable
• Failure to furnish information by any person who is attending/ helping carrying the business/ profession of any person, in whose building/ place the income tax authority has entered for collecting information shall attract a penalty of upto ₹1,000
• Non furnishing of report by any reporting entity which is obliged to furnish Country by Country report will attract penalty as follows:

Others

• Failure to apply/quote/ intimate PAN/ quoting false PAN shall attract a penalty of ₹10,000
• Failure to apply/quote TAN/ quoting false TAN shall attract a penalty of ₹10,000
• In case of the following defaults, ₹10,000 will be the penalty leviable,
  • Refusal to answer questions posed by the department
  • Refusal to sign statements made in income tax proceedings
  • Non-compliance with summons to give evidence/ produce books of accounts
  • Failure to comply with a notice

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