Penalties for Non-Compliance in India

You must have heard the phrase, any law is a good law as long as it is well implemented. Penalties and punishments are vital tools of law enforcement. Non-compliance with tax laws in India can attract heavy fines and legal actions against your business. In this article, we cover all penalties for non-compliance in India.

What is Non-Compliance?

When it comes to India, you have to adhere to many rules and regulations passed by the government. These include:

• Companies Act 2013
• Goods and Services Tax (GST) (introduced from 2017)
• Income Tax Act 1961
• The Factories Act 1948
• The Minimum Wages Act 1948
• Payment of Bonus Act 1965
• Contract Labor Act 1970
• KYC Policy of RBI
• Digital Personal Data Protection Act 2023
• Foreign Exchange Management Act 1999
• Insolvency and Bankruptcy Code

These are just some of the regulations that you need to follow. If you fail to adhere to these laws, it results in non-compliance.

Types of Non-Compliance of Tax Laws

Now that you know what non-compliance is, it is time to understand the types of non-compliance in tax laws. Here are the major tax non-compliances:

• Not filing tax returns
• Concealing a part of your income by underreporting
• Claiming more as deductions than your eligibility
• Failing to pay your taxes on time
• Non-compliance of TDS rules
• Incorrect GST returns

Consequences of Non-Compliance

If you fail to comply with tax laws in India, you have to face the consequences of non-compliance. They can be imposed in various forms:

• Heavy fines & penalties
• Interest on unpaid taxes
• Legal consequences both civil and criminal
• Damage to the credibility of your business
• Disruptions in operations due to actions by authorities

Penalties for Non-Compliance in India

In this section, we will take a look at each type of non-compliance related to taxation in India.

Penalties for GST non-compliance

There can be heavy penalties for GST non-compliance. These can be levied in the form of:

• Hefty fines
• Interest on unpaid taxes
• Legal actions such as imprisonment and recovery

Click here to learn the details about all GST-related penalties.

Penalty for non-compliance of GST audit

Although there are no specific penalties for non-compliance with GST Audit, the penalty is levied under the general penalties head. If you are unable to produce the following GST audit trail, it can be considered non-compliance:

• Particulars of transactions
• Date and nature of changes to books of accounts
• Details of individuals who authorise transactions
• Access to books of accounts
• Details about the backup and restoration of the data

If the non-compliance is deliberate, there can be more severe consequences.

Penalty for non-compliance of e-invoicing

• E-invoice not generated - Higher of 100% of the tax value involved or Rs.10,000
• Incorrect invoicing - Penalty of Rs.25,000
• Detention of goods in transit
• Restrictions on generating e-way bills
• Denied Input Tax Credits
• More checks and audits by authorities

Click here to learn about penalties related to e-invoicing in detail.

Penalty for non-compliance of e-way bill

• Penalty - Higher of 100% of the tax value involved or Rs.10,000
• Seizure of goods and the vehicle involved

Click here to learn more about penalties related to e-way bills.

Penalty for non-compliance with an income tax notice

Penalties for non-compliance with income tax notices can be variable depending on the section under which the notice has been served. Click here to learn more about penalties related to non-compliance with Income Tax notices.

Penalty for non-compliance with tax audit

If you don’t undergo a tax audit of your accounts as per the Income Tax Act 1961, you can be charged a penalty of Rs. 1.50 Lakhs or 0.5% of the turnover for non-compliance.

Penalty for non-compliance of the Companies Act 2013

Every company incorporated or registered under the Companies Act 2013 should follow the rules prescribed. Click on the link below to learn about the consequences of non-compliance. 

Penalties After Incorporation under Companies Act, 2013 - Part I