Income Tax Penalty

Defaults & Penalties Under Income Tax Act, 1961

Table of Contents

Introduction-

Penalties under the Income Tax Act, 1961,(IT Act) are levied for various defaults made by taxpayer’s. Few Income Tax penalty are mandatory and others are at the discretion of the Tax authorities. In this article, we will discuss in brief about that the few sections relating to penalty for not paying income tax in India.

Sections of penalty discussed in this blog are summarized as under

 

Penalty under section 221(1) of the IT Act – Penalty payable when tax in default

As per Section 140A(3) of the IT Act, if a person fails to pay Self Assessment Tax or interest or fee either partly or wholly, then the person will be considered as assessee in default in respect of unpaid amount.

As per the provisions of section 221(1) of the IT Act, when an assessee is in default in making payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable, is liable, to pay such amount of penalty as the Assessing Officer may direct. However, the total amount of penalty should not exceed the amount of tax in arrears.

 

Fee under section 234E of the IT Act – For default in furnishing TDS / TCS Return

According to Section 234E of the IT Act, if an Assessee fails to file the TDS / TCS return on or before the prescribed due date, then such Assessee shall be liable to pay, by way of Fee, a sum of Rs. 200 for every day of Default.

Note: However, the amount of late fees shall not exceed the amount of TDS or TCS.

 

Fee under section 234F of the IT Act – For default in furnishing Return of Income

As per the provisions of section 139(1) of the IT Act, If an Assessee fails to furnish return of income within due date as prescribed under section 139(1), then he has to pay sum of-

  • 5000 – If Return is furnished on or before 31st December of the Assessment Year.
  • 10,000 In any other case.

 Note- Penalty shall not exceed Rs. 1000, if aggregate income is below Rs. 5 lakh.

 

Penalty under section 271H of the IT Act – For default in furnishing TDS / TCS Return

According to Section 271H, if an Assessee fails to file the statement of TDS /TCS Return on or before the due dates as prescribed or files incorrect information in the statement. In such case assessing officer may direct such Assessee to pay penalty under Section 271H.

Minimum amount of penalty shall be levied of Rs. 10,000 which can extend to Rs. 1,00,000.

Note: No penalty shall be levied for the failure in filing statement of TDS / TCS, if the assessee proves that after paying tax deducted or collected along with the fee and interest, if any, he had filed the statements of TDS / TCS before the expiry of a period of one year from the time prescribed for delivering such statement.

 

Penalty under section 271C of the IT Act  – For failure to deduct tax at source

1. If any person fails to –

(a) Deduct the whole or any part of the tax as required by the provisions of TDS or

(b) Pay the whole or any part of the tax as required by –

(i) Tax on distributed profits of domestic companies (Section 115-O(2) of the IT Act)

(ii)TDS on winnings from lottery or crossword puzzle (Second proviso to Section 194B of the IT Act)

In such cases, person shall be liable to pay, by way of penalty, a sum equal to the amount of tax, which such person failed to deduct or pay as aforesaid.

Note: Any penalty imposable under section 271C(1) of the IT Act shall be imposed by ‘The Joint Commissioner’.

 

Penalty under section 271CA of the IT Act – For failure to collect tax at source

As per the provisions of section 206C of the IT Act, there are certain transactions in respect of which tax is collected at source by the person specified person.

If such person fails to collect the tax at source, then he shall be liable to pay penalty for not paying income tax in India under Section 271CA of the IT Act. Penalty shall be the sum equal to the amount of Tax not Collected.

Note: Any penalty imposable under section 271CA(1) of the IT Actshall be imposed by‘The Joint Commissioner’.

 

Penalty under section 271A of the IT Act – Failure to keep, maintain or retain books of account, documents, etc.

An Assessee is required to maintain the Books of Account under section 44AA of the IT Act. If an Assessee fails to maintain Books of Account as per the provisions of Section 44AA, Assessee shall be liable to pay penalty under Section 271A of the IT Act.

Penalty as per Section 271A is Rs. 25,000.

 

Penalty under section 271AA of the IT Act–Failure to keep and maintain information and document, etc., in respect of certain transactions

Every Person entering in to ‘International Transaction or Specified Domestic Transaction’ shall have to keep & Maintain such information & documents as prescribed under Section 92D of the Act. Penalty under Section 271AA of the IT Act, is imposed in the following cases of the failures –

  • If a Person fails to keep & maintain information & documents regarding such Transactions as provided under Section 92D read with income tax penalty Rule 10D.
  • If a Person fails to Report such transactions which was required to be done.
  • If a Person maintains or furnishes a false information or documents regarding such transactions.

Penalty will be equal to 2% of the value of each ‘International Transaction or Specified Domestic Transaction’ entered into.

If the Person fails to furnish information & documents to the Authority, then the person will be liable to pay penalty of Rs. 5,00,000 under Section 271AA(2) of the IT Act.

 

Penalty under section 271AAC of the IT Act-In respect of certain incomeunder Section 68, 69, 69A, 69B, 69C, 69D of the IT Act

Income from undisclosed Sources-

Sr. No. Section Description
1 68 Unexplained Cash Credits
2 69 No explanation of Investment
3 69A Unexplained Money or tax on undisclosed income
4 69B Partial amount of Investment disclosed in books of Accounts
5 69C Unexplained expenditure
6 69D Amount repaid or borrowed on Hundi

 

As per the provisions of section 271AAC of the IT Act, if any income of assessee determined includes income referred to in section 68section 69, section 69A, section 69B, section 69C or section 69D of the IT Act for any previous year. The assessee shall pay by way of penalty @ 10% of tax payable under clause section 115BBE(1)(i) of the IT Act.

 

Penalty under section 271B of the IT Act-Failure to get accounts audited under Section 44AB of the IT Act

As per the provisions of section 44ABof the IT Act prescribes persons required to get their books audited under such section.

If an assessee fails to get his accounts audited or fails to furnish a report of audit as per Section 44AB of the IT Act, penalty under section 271B of the IT Act shall be levied.

Penalty under section 271B of the IT Act shall be levied as under:

  • In case of Business- 0.5% of the Turnover or Gross Receipts.
  • In case of Profession- 0.5% of Gross Receipts.

Or

Rs. 1,50,000, Whichever is less.

 

Penalty under section 271BA of the IT Act–For Failure to furnish report under section 92E of the IT Act

Every person entering into ‘International transaction or specified domestic Transaction’ shall have to obtain a report from CA in prescribed as per section 92E.

If an Assessee fails to do so, in such case that Assessee shall be liable to pay penalty under Section 271BA.

Penalty under Section 271BA for failure of Furnishing report from a Chartered Accountant as per Section 92E is Rs. 1,00,000/-.

 

Penalty under section 271D of the IT Act-For failure to comply with the provisions of section 269SS

According to Section 269SS of the IT Act, no person shall take or accept loan or deposit or any specified sum more than Rs. 20,000/-by any mode, other than the mode prescribed under the Section.

‘Specified Sum’means any amount of money receivable, whether as advance or otherwise, for transfer of immovable property, weather transfer takes place or not.

Breach of the provision under Section 269SS of the IT Act will lead to penalty under Section 271D of the Act.

Penalty shall be levied of an amount equal to loan or deposit accepted or taken.

 

Penalty under section 271DA of the IT Act-For failure to comply with the provisions of section 269ST

According to Section 269ST of the IT Act no person shall receive an amount of Rs. 2,00,000 or more –

  • Aggregate sum in a day from a person.
  • Single Transaction
  • Transactions relating to one event or occasion.

If the provision of Section 269ST of the IT Act contravenes, then penalty on such person who receives a sum will be levied under Section 271DA.

The penalty shall be equal to the amount of receipt of sum.

Note:

  • The above restrictions shall not apply to Banking Company, Post Office savings bank, Co-Operative bank, Government or any person notified by Central Government.
  • Restriction shall not apply, if a person proves that there were good and sufficient reasons for such contravention.

 

Penalty under section 271DB of the IT Act-For failure to comply with the provisions of section 269SU

With effect from1st November 2019, Income Tax Act have inserted a new Section 269SU of the IT Act.

According to this Section, any person engaged in business should accept payment through prescribed Electronic Mode, if the amount of Gross Receipt from such business exceeds Rs. 50 Crore during the relevant previous year.

If the provision of Section 269SU of the IT Act contravenes, then penalty on such person who receives a sum will be levied under Section 271DB.

The penalty shall be Rs. 5000/-for every day during which such failure continues.

 

Penalty under section 271E of the IT Act-For failure to comply with the provisions of section 269T

According to Section 269T of the IT Act no person shall repay loan or deposits or specified advance more than Rs. 20,000/-by any mode other than the mode as may be prescribed.

‘Specified Advance’ means any amount of Money in the nature of Advance, in respect to transfer of an Immovable property, whether transfer has taken place or not.

If the provision of Section 269T of the IT Act contravenes, then penalty on such person who receives a sum will be levied under Section 271E.

 The penalty shall be equal to the amount of loan or deposit or ‘specified advance’ so repaid.

 

Penalty under section 271FA of the IT Act-For failure to furnish statement of financial transaction or reportable account

As amended by Finance Act, 2020, an Assessee have to furnish statement of Financial Transactions or Reportable Account (earlier the statement was known as Annual Information Return AIR) as required under Section 285BA(1) of the IT Act.

Non-furnishing of statement will lead to penalty under Section 271FA of the IT Act.

Penalty of Rs. 500 per day of default shall be levied.

Note-

As per Section 285BA(5),Tax Authorities issues a notice to the person to file the statement within 30 days from the date of service of such notice. If an Assessee fails to file the statement within the specified period, penalty of Rs. 1,000/- per day shall be levied immediately from the day where such notice for furnishing the statement expires.

 

Penalty under section 270A of the IT Act – For Misreporting & Under – reporting of Income

As per the provisions of section 270A of the IT Act, the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may direct any person who has under-reported his income shall be liable to pay a penalty in addition to tax.

Penalty under section 270A of the IT Act, is levied as under:

  • On Under-reported Income or undisclosed income under income tax act, the Rate of penalty on undisclosed income under Income Tax Act shall be 50% of the Tax Payable.
  • Cases where Under-reporting of Income results from Misreporting of Income, then the Rate of Penalty shall be 200% of the Tax Payable.

 

Penalty under section 272A of the IT Act – Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.

As per the provisions of Section 272A of the IT Act, Penalty is levied, if an Assessee fails to comply with Notices issued under various sections such as 142(1) or 143(2) or 142(2A) of the IT Act etc.

 

Conclusion

From reading the above blog, we already know that there are various kinds of penalties payable on default made by assessee. To avoid such tax on undisclosed income and penalties payable on defaults, it is better to make compliance of business as per Income tax Act, 1961. For better & timely compliance of such provisions is it always advisable to take help of experts. If you require any assistance for Income tax Compliance or in handling notices of penalties issued by Income tax Department, contact your trustworthy advisors Manthan Experts at info@manthanexperts.com.


Knowledge Source:

‘High Value Transactions’ traced under Income Tax

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