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Penalties, Prosecution and Punishment under Income Tax Act

Last Update Date : August 13, 2018

penalty under IT law

Football is the game of mistakes. The team who makes fewer mistakes wins. Often in the game of football, if a player in the team commits an offence, the opposite team gets a penalty kick. But in the game of taxes, if you commit any offence, it is only you who is liable for a penalty or a prosecution. We Indians always manage to do “jugaad” in our lives. The same concept is used while filing taxes as well. But not every time this “jugaad” works. There are chances that you may land in trouble and invite yourself a penalty or a prosecution.

Let us discuss all the possible penalties, offences and prosecutions under the Income Tax Act.

Methods of Maintaining Tax Compliance

Non-compliance with tax regulations results in the imposition of penalties and worse case prosecution. There are three methods with which the Income Tax Department tries to maintain the compliance with the provisions of the act.

These methods are:

  1. Interest
  2. Penalties
  3. Prosecution

Levying interest on any late payments are mostly related to delay in compliance, but penalties and prosecution are related to the wilful non-compliance of the rules.

Penalties under Various Sections

The punishment given in monetary terms for non-compliance to the Income Tax Act is called a Penalty.

Following are the penalties under various sections:

Section Description Penalty Imposed
140A(3) Default in payment of self-assessment tax, interest and fees or both Amount decided by the respective assessing officer restricted to arrears in taxes
158BFA(2) Undisclosed income for the specified block period From 100% of the undisclosed amount to 300% of the undisclosed amount depending on the severity according to the respective assessing officer.
221(1) Default in payment of tax Amount decided by the respective assessing officer restricted to arrears in taxes
234E Default in filing statement under section 200(3)- TDS return or 206C(3) -TCS return Rs 200 per day until the statement is filed maximum up to tax amount deducted or collected
234F Failure in furnishing return within the deadline Rs 5000 (If a return filed after the due date of 31st July but before 31st Dec of the relevant assessment year)

Rs 10,000 (If filed after 31st Dec 2018)

Rs 1000 (For income less than Rs 5 lakhs)

270A(1) Under-reporting or Mis-reporting of income 50% of the tax payable on the under-reported income

200% of the tax payable on the under-reported income due to mis-reporting

271(1)(b) Non-compliance to notice under section 115WD(2),115WE(2), 142(1), 143(2), 142(2A) Rs 10,000 per failure before A.Y. 2017-18

Not applicable from A.Y. 2017-18

271(1)(c) Concealment of income or fringe benefits or inaccurate mention of the same 100% to 300% of the tax before A.Y. 2017-18

Not applicable from A.Y. 2017-18

271(4) Profit sharing with entities other than partners of the firm Up to 150 per cent of the difference between the tax on partner’s income assessed and tax on income returned.

Not applicable from A.Y. 2017-18

271A Non-maintenance of books or accounts (As per section 44AA) Rs 25000
271AA(1) Non-maintenance or misreporting of information or documents of transaction mentioned in per section 92D(1) 92D(2) 2% of each international transaction/or specified domestic transaction
271AA(2) Non-disclosure of information or document mentioned in Section 92D(4) Rs 5,00,000
271AAA Undisclosed income before 1st July 2012 10% of the undisclosed amount
271AAB(1) Undisclosed income from 1st July 2012 to 15th December 2016 10% of the undisclosed amount if the assessee admits the undisclosed income, substantiates the manner in which it was earned, files the return disclosing such income and pays tax with interest before the due date specified

20% of the undisclosed amount if the assessee does not admits the undisclosed income and files the return declaring such income and pays tax with interest before the due date specified

60% of the undisclosed amount if neither of the above two cases.

271AAB(1A) Undisclosed income after 15th December 2016 30% of the undisclosed amount if the assessee admits the undisclosed income, substantiates the manner in which it was earned, files the return disclosing such income and pays tax with interest before the due date specified

60% of the undisclosed amount if other than above

271AAC Income under section 68, 69, 69A, 69B, 69C, 69D not disclosed by assessee or tax related to it is not paid 10% of tax payable under section 115BBE.
271B If the accounts are not audited, or report of the audit is not submitted as per section 44AB Rs 1,50,000 or 0.5% of the total turnover/gross receipts whichever is least
271BA If the report from an accountant is not submitted as per section 92E (transfer pricing audit report) Rs 1,00,000
271BB Non-disclosure of submission of units described under section 88A(1) 20% of such amount
271C Non-deduction of Tax fully or partially as mentioned under section 192 to 196D of chapter XVIIB

or failure to pay wholly or partly tax u/s 115-O(2) or second proviso to section 194B

An amount equivalent to the tax not deducted or paid
271CA Non-collection of Tax as mentioned under Chapter XVII-BB An amount equivalent to the tax not collected
271D Acceptance of any amount against the laws mentioned in section 269SS An amount equal to loan or deposit or specified sum so taken or accepted
271DA Acceptance of Rs. 2,00,000 or more in one single day section 269ST 100% of such amount
271E Repayment of any loan otherwise than in a manner mentioned in Section 269T 100% of such amount
271F Non-filing of return as mentioned in section 139(1) provisions before respective assessment year Rs 5000 before A.Y. 2017-18

Not applicable from A.Y. 2017-18

271FA Non-issuance of Annual Information Return as mentioned in section 285BA(1) Rs 500/day during which default continues
Non-issuance of Annual Information Return as mentioned in section 285BA(5) Rs 1000/day during which default continues
271FAB Non-submission of the statement of activities conducted in India by foreign investment fund within 90 days after the end of the respective financial year Rs 5,00,000
271FB If failure to file a return of fringe benefits as required under section 115WD(1) Rs 100/day during which default continues
271G Non-disclosure of information or document for transaction mentioned in Section 92D(3) 2% of each transaction
271GA Non- submission of the report of income earned by an Indian in case of

  • Stake in a foreign company which earns profit from assets in India
  • The Foreign company owning assets in India
2% of the transaction if it is concerned with the Indian or Rs 5000
271GB(1) Non-submission of report mentioned in section 286(2) Rs 5000/day: up to 30 days

Rs 15000/day: after 30 days until submission

271GB(2) Non-submission of report or document mentioned in section 271GB(6) Rs 5000/day until submission
271GB(3) Non-submission of report mentioned in section 286 despite penalties in 271GB(1) and 271GB(2) Rs 50,000/day until submission
271GB(4) No mention of in-accuracy in the report mentioned in section 286(2) or Submission of the inaccurate report mentioned in section 286(2) Rs 5,00,000
271H Non-submission or Inaccurate submission of statement mentioned in section 200(3) or 206C(3) Between Rs 10,000 to Rs 1,00,000 as decided by the respective assessing officer w.e.f 1st October 2014
271I Non-disclosure of payment made to NRI or foreign entity in the form 15CA, 15CB Rs 1,00,000
271J Inaccurate details in any report or document or certificate by an accountant, investment banker Rs 10,000/ inaccurate report or certificate
272A(1) Non-compliance in:

Answering questions

Signing statement or documents

Providing books of accounts for summons under section 131(1)

Notices under section 142(1), 143(2), 142(2A)

Rs 10,000/ each non-compliance
272A(2) Failure in:

  • Providing details under section 94(6) related to securities
  • The issue of notice of termination of business or profession under section 176(3)
  • Submit returns, statements, certificates and acceptance of inspection as mentioned in section 133, 134, 139(4A), 139(4C), 192(2C), 197A, 203, 206, 206C, 206C(1A), 285B
  • Deduct and pay tax under section 226(2)
  • Filing a copy of statement mentioned in section 200(3) and 206C(3) before 1st July 2012
  • Filing a copy of statement mentioned in section 206A(1)
  • Submission of a statement mentioned in section 200(2A) and 206C(3A) mandatory from 1st June 2015
Rs 10,000/ failure

(In case of failures related to section 197A, 203, 206, 206C, 200(2A), section 200(3), 206C(3), 206C(3A), penalty limited to the TCS/TDS amount)

272AA(1) Non-compliance with section 133B Maximum up to Rs 1000
272B Non-compliance with section 139A, 139A(5)(c), 1395A, 1395C Rs 10,000
272BB(1) Non-compliance with section 203A Rs 10,000/ non-compliance
272BB(1A) Incorrect TAN in certificates, statements, challans, documents mentioned in section 203A(2) Rs 10,000

Is the process of levying penalty automatic?

The process of levying penalty is not automatic that is the respective person is given an opportunity to justify that there was reasonable cause for such failure and if he fails to do so then only he is liable for paying a penalty.

If the assessee manages to prove the logical reason for failure or non-compliance, he would acquitted from paying any penalties for any failure under sections 271(1)(b), 271A, 271AA, 271B, 271BA, 271BB, 271C, 271CA, 271D, 271E, 271F, 271FA, 271FAB, 271FB, 271G, 271GA, 271GB, 271H, 271-I, 272A(1)(c) or (d), 272A(2), 272AA(1), 272B, 272BB(1), 272BB(1A), 272BBB(1), 273(1)(b), 273(2)(b) and 273(2)(c).

Is there any waiver or reduction in penalty?

  1. The Principal Commissioner/Commissioner of Income-tax may reduce or waive the amount of any penalty imposed or imposable if prescribed conditions are satisfied.
  2. The person liable to pay the penalty has given his full co-operation to the government related to the recovery of taxes.
  3. If the assessee has satisfactorily produced the concerned documents during the enquiry, the commissioner may reduce or waive off the penalty.
  4. Under section 273AA, the assessee may appeal to get a waiver or reduction in penalty

If (a) he has made an application for settlement under section 245C and the proceedings for settlement have abated; and (b) penalty proceeding has been initiated under this Act. The application shall not be made after the imposition of penalty after abatement.

Offences and Prosecutions under Various Sections

If an assessee commits an offence, he will be liable for prosecution even if he is not an assessee under the Income Tax Act. If an offence is committed by an Entity, Association of Persons or Body of Individuals, every person related to the offence is liable for prosecution and is a case of H.U.F, the “karta” of the family is to be prosecuted.

Why is prosecution necessary?

If an assessee tries to evade taxes, deploying penalty is not much time sufficient. Hence, they need to be prosecuted. There are many entities which manage to earn good profits and not paying due taxes. They are ready to pay penalties in case they get caught instead of paying taxes. In such cases, he may be directly liable for prosecution than a penalty.

Following are the offences and prosecution under various sections of the Income Tax Act.

Section Description Prosecution

(Imprisonment)

Fine
275A Violation of order of search and seizure mentioned in section 132(1) or 132(3) Maximum 2 years Indefinite
275B Failure to appoint an authorised auditor for checking books of account as mentioned in section 132(1)(iib) Maximum 2 years Indefinite
276 Non-disclosure, illegal sale of the property to avoid tax recovery Maximum 2 years Indefinite
276A Non-compliance with provisions under section 178(1) and 178(3) related to the company in liquidation 6 months – 2 years
276AB Non-compliance with provisions under section 269UC, 269UE, 269 UL related purchase of property by the government 6 months – 2 years Indefinite
276B Failure in payment of tax deducted at source under chapter VII-B or failure in payment of tax as mentioned under section 115-O(2) second proviso to section 194B 3 months – 7 years Indefinite
276BB Failure in payment of tax collected at source as mentioned in section 206C 3 months – 7 years Indefinite
276C(1) Purposeful attempt to evade tax, interests or penalties or non-disclosure of income then:

The amount is more than 25 lakhs

The amount is less than 25 lakhs

 

 

6 months – 7 years

3 months – 2 years

 

 

Indefinite

Indefinite

276C(2) Purposeful attempt to evade tax, interests or penalties as per offences mentioned in 279A 3 months – 2 years Indefinite
276CC Purposeful non-submission of returns of fringe benefits under section 15WD or 15WH or filing of return under section 139(1) or responses of notices under 142(1)(i), 148, 153A, then:

Amount is more than 25 lakhs

Amount is less than 25 lakhs

 

 

 

 

6 months – 7 years

3 months – 2 years

 

 

 

 

Indefinite

Indefinite

276CCC Non-submission of return on total income as mentioned under section 158BC(a) 3 months – 2 years Indefinite
276D Non-submission of accounts or documents under section142(1) or non-compliance of notice under section 142(2A) Maximum 1 year Rs. 4 to Rs.10 per day until payment
277 Display of false accounts to evade tax for offences under section 279A then

Amount more than Rs 25 lakhs

Amount less than Rs 25 lakhs

 

 

6 months – 7 years

3 months – 2 years

 

 

Indefinite

Indefinite

277A Display of false accounts to help other to evade tax 3 months – 2 years Indefinite
278 Submission of a false return, account for income or fringe benefits which are liable for levying tax then:

Amount more than Rs 25 lakhs

Amount less than Rs 25 lakhs

 

 

6 months – 7 years

3 months – 2 years

 

 

Indefinite Indefinite

278A Second time offences under section 276B, 276C(1), 276CC, 277, 278  

6 months – 7 years

 

Indefinite
280(1) Disclosure of details by public servants against laws mentioned in section280(2) Maximum 6 months Indefinite

Relief from Prosecution

If the assessee manages to prove the logical reason for failure or non-compliance, he would be acquitted from the prosecution for offences under sections 276A, 276AB or 276B. Prosecution for offences under section 275A, section 275B, section 276, section 276A, section 276B, section 276BB, section 276C, section 276CC, section 276D, section 277, section 277A and section 278 shall be liable only if there is approval of the same by Principal Director General/Principal Chief Commissioner/Principal Commissioner/ Director General/Chief Commissioner/Commissioner, apart from the prosecutions which are initiated by the commissioner.

From 1st April 2008 as mentioned in section 278AB an assessee may apply to the Principal Commissioner/Commissioner to waive him from the prosecution if he has made an application for settlement under section 245C and the proceedings have been made less intense under section 245HA.

Notes

  1. From A.Y. 2015-16 annual information return has been converted into a statement of financial transaction or reportable account and return is converted into the statement.
  2. A penalty of Rs. 50,000 is to be imposed on submission of an inaccurate statement of financial transaction or reportable account under a new section 271FAA from A.Y. 2015-16.
  3. The TPO can also levy penalty from A.Y. 2014-15.
  4. Section 271H mentions that the penalty would be levied by the assessing officer from A.Y. 2014-15.
  5. With effect from October 1, 2014, if a person wilfully fails to produce accounts and documents as stated or wilfully fails to comply with the direction given, he shall be punishable with rigorous imprisonment for a term which may extend to one year and with fine (quantum of the fine has not been specified).
  6. From 1st October 2014, failure in submitting documents and accounts or non-compliance with laws will be imprisoned for one year with an indefinite fine.

Non-compliance with any rules and regulations under the Income Tax Act will lead you to different penalties, prosecutions and punishments. Therefore it not advisable for any individual or a company to look for ways to evade taxes.

H&R Block India assigns you an individual tax expert, who would assist you to file your taxes in total compliance with the laws.

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