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A look into some of the most common income tax penalties in India

In accordance with the Union List set out in the Constitution of India, the Central Government has the power to levy a tax on any income other than agricultural income. This is described in Section 10(1) of the Income Tax Act, 1961, which is the charging statute of income tax in India. Generally understood, Income Tax is the annual tax levies on the income of businesses and individuals, in respect of which businessmen and other individuals are required to file their income returns to the central government each year to ascertain the amount of tax they owe to the government. This tax happens to be the most major source of funding available to the government. Consistent with the Income Tax laws in India, income tax is imposed by the government on:

  • Individuals
  • Hindu United Families (HUF)
  • Companies & Firms
  • Limited Liability Partnership (LLP)
  • Association of persons, a body of individuals
  • Local authority as well as any other artificial juridical person

Broadly, this tax is imposed on both earned and unearned income. It can be in the form of direct tax, paid directly to the government on your income, and indirect tax, that is charged by various service providers, like GST. In addition, this is applicable to anyone who earns income in India, including NRIs. The Income Tax Department has divided income typically into 5 categories, which are as follows:

  1. Income from salary- wages, pensions, commissions, etc.
  2. Income from other sources-savings bank account interest, fixed deposits, prize money, if any, etc.
  3. Income from house property- from rents
  4. Income from capital gains- shares, mutual funds, etc.
  5. Income from a business- income from self-employed areas.

For purposes of calculating the amount of income tax a particular business/ individual owes, the above categories are further categorized into tax slabs based on their income range. Nonetheless, these tax slabs are not fixed and are subject to exemptions and deductions.

As part of the official norm, taxpayers are supposed to file their income tax return, which is a statement of earnings from various sources, before the specified date for each year, that determine the following:

  • If the taxpayer owes tax in the first place
  • The amount of tax that the taxpayer owes
  • Whether he/she is eligible for any tax refund

As follows, the non-payment of income tax is a punishable offence. Indeed, there are various penalties that accrue for various kinds of default by taxpayers. Here, the Income Tax Act lays down the various tax defaults and the penalty that they attract, as amended by the Finance Act 2017. It is also important to note here that not all penalties are mandatory, and some are at the dictates of the discretion of the tax authorities.

Presented below is a detailed list of the most common Income Tax defaults that attract differing penalties as per the relevant sections of the Income Tax Act:

  • Default in Self-Assessment Tax
  • Default in making payment of tax
  • Late filing of TDS/TCS Return
  • Failure to comply with Income Tax notice
  • Concealing income or furnishing wrong details
  • Non-maintenance of book of accounts
  • Non-maintenance of book of international transactions or designated domestic transactions
  • Undisclosed income found in Income Tax search
  • Undisclosed sources
  • Failure to get accounts audited
  • Failure to deduct tax at the source or failure of the company to pay the Dividend Distribution Tax
  • Failure to pay the stipulated tax on winning of a lottery, game, etc.
  • Failure to collect tax at source
  • Accepting loans and deposits in cash
  • Receipt of an amount of Rs. 2 lakh or more in cash
  • Repayment of specific loans or deposits in cash
  • Not filing the Statement of Financial Transaction or the Annual Information Return (AIR)
  • Filing inaccurate statement of financial transaction
  • Penalty for failure to file the required TDS/TCS return
  • Failure to cooperate with tax authorities
  • Failure to comply with the provisions relating to PAN
  • Failure to comply with the provisions relating to Tax Deduction Account Number (TAN)/ Tax Collection Number

To know the complete details of the penalties on each category of the above cited defaults, you may refer to this link and get informed accordingly.

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