At the time of filing Income Tax Return, one must remember the saying, “A stitch in times saves nine” as a timely effort will prevent more work later. Any task related to your Income Tax must be handled diligently. You should always pay your Income Tax on time, declare your income correctly and file your returns accurately. Making a mistake at any of these tasks can put you into trouble. One such mistake could be not reporting your income correctly. Income Tax Act has severe penal provisions to punish those found guilty of under-reporting or mis-reporting of income. In this guide, we will talk about all such provisions in detail.
The definition of Under-reporting of Income is vast as per Section 270A the Income tax act. In simple words as the name suggests it means the recording of Income comparatively lesser than the actual income. Under-reporting of Income includes and excludes many provisions and sections stated below:
Income assessed or reassessed has the effect of reducing the loss or converting such loss into income.
Under-reported income arising out of Section 115JB / 115JC will be (A-B) +(C-D),
Where A = the total income assessed as per the general provisions of the Act.
B = Total income that would have been chargeable and assessed as per the general provisions of the Act but reduced by the amount of underreported income.
C = the total income assessed as per the provisions of Section 115JB or Section 115JC.
D = the total income that would have been chargeable and assessed as per the provisions of Section 115JB or Section115JC but reduced by the amount of under-reported income.
Total income assessed as per general provisions (A) – Rs. 15,00,000
Total income that would have been chargeable and assessed as per the general provisions of the Act but reduced by the amount of underreported income (B) – Rs. 8,00,000
The total income assessed as per the provisions of section 115JB or section 115JC (C) – Rs. 5,00,000
The total income that would have been chargeable and assessed as per the provisions of Section 115JB or Section115JC but reduced by the amount of under-reported income (D) – Rs. 4,00,000
Therefore, (A-B) + (C-D) = Rs. 8,00,000
Mis-reporting of income as per Section 270A of Income Tax Act generally occurs in the circumstances stated below:
Section 270A was introduced by the Finance Act 2016, with a desire to rationalise penal provisions and bring objectivity, certainty and clarity in them. Before this, Section 271(1)(c) was in force until FY 2016-17 which explained that levy of penalty is subject to the discretion of the Income Tax officer which can range from 100% to 300% of the amount of tax evaded. Section 270A explains the meaning of under-reporting and mis-reporting of income also prescribes the penalty levied on them. The quantum of penalty is described below:
Note: Quantum of penalty under Section 270A is not subject to the discretion of income tax officer and is a fixed percentage (50% or 200%)
Let’s say an individual below 60 years of age filed his return of income for the assessment year 2018-19; income is assessed determining loss of Rs. 7,00,000 due to under-reported income of Rs. 15,00,000, considering that none of the additions or disallowances made in the assessment the penalty would be calculated as:
(A): Income assessed as per Section 143(3) – (Rs. 7,00,000)
(B): Under-reported income – Rs. 10,00,000
Tax payable on (B) at normal slab rates – Rs. 1,12,500
Penalty liable will be 50% of Rs. 1,12,500 i.e. Rs. 56,250
Section 270AA generally provides the immunity from imposition of a penalty which is subject to the fulfilment of two conditions stated below:
Important things to know:
The answer is yes. Under-reporting and mis-reporting of income can make you pay a hefty amount of money as penalties as per section 270A. The income tax filing is very diligent exercise to do as you should be alert enough to provide all the details correctly and adhere to all the various provisions which are allowed and disallowed. Here are few ways to keep in mind in order to avoid getting a tax notice under this section:
1. What happens if one does not comply with income tax notice?
Ans: In case a taxpayer fails to comply with the notice issued by income tax department under Section 142(1) or 143(2) then the assessing officer can issue a notice, either asking to file the return of income or to furnish in writing all the details of assets and liabilities.
2. What happens if a wrong PAN number is quoted?
Ans: If the PAN quoted is incorrect a penalty of Rs. 10,000 will be levied.
Thus, the taxpayer must be vigilant while filing Income tax return and disclose all the incomes under respective heads. Otherwise, you have to pay penalty under section 270A as explained above for under-reporting or mis-reporting of income along with the applicable taxes. In order to avoid such situations file your taxes with the help of personal tax experts conveniently at H&R Block.