Summary of Penalties Under the Income Tax Act (2024)

A timely and consistent paying of taxes and filing of returns ensures the government has money for public welfare at any point of time. To make sure that taxpayers do not default in paying taxes or disclosing the information, there are several penalties prescribed under the Act. A penalty or a punishment is imposed on the taxpayers for being non-compliant. Listed below is a summary of some of the important and most common penalties.

Default in making payment of tax

The amount of penalty leviable will be as determined by the Assessing Officer. However, the amount will not exceed the amount of tax in arrears.

Under-reporting of income

• If the income assessed/ re-assessed exceeds the income declared by the assessee, or in cases where return has not been filed and income exceeds the basic exemption limit, penalty at 50% of tax payable on such under reported income shall be levied.
• 200% of the tax is payable if under-reporting results from misreporting of income.

Failure to maintain books of accounts and other documents

• Normally, the amount of penalty leviable is ₹25,000.
• In case, the assessee is a person who has entered into international transaction, the penalty will be 2% of the value of such international transactions or specified domestic transactions.

Penalty for false entry such as fake invoices

In case the income tax officer finds that the books of accounts provided by the asseessee in the proceeding contains the following:

• forged or falsified documents such as a fake invoice or a false piece of documentary evidence
• an invoice in respect of supply or receipts of goods or services issued by any person without actual supply or receipt of goods or services
• an invoice of supply or receipt of goods or services received from a person who does not exist
• an omission of any entry which is relevant for computation of total income.

Then, the assessee might have to pay a penalty of the amount equal to sum of such false or omitted entries.

Undisclosed income

• Where the income determined includes undisclosed income, a penalty @10% is payable. However, no such penalty will be leviable, if such income was included in the return and tax was paid before the end of the relevant previous year.
• Where Search has been initiated on/ after 1/7/2012 but before 15/12/2016,
  • If undisclosed income is admitted during the course of search and assessee pays tax and interest and files return, a penalty @ 10% of such undisclosed income is payable.
  • If undisclosed income is not admitted but the same is furnished in the return filed after such search, 20% of such undisclosed income is payable.
  • In all other cases, penalty is leviable @ 60%
• Where Search has been initiated on/ after 15/12/2016,
  • If undisclosed income is admitted during the course of Search and assessee pays tax and interest and files return, a penalty @ 30% of such undisclosed income is payable.
  • In all other cases, penalty is leviable @ 60%

Audit and Audit Report

• If the assessee fails to get his accounts audited, obtain audit report, or furnish report of such auditor, a penalty will be leviable at the ₹1,50,000 or ½% of the total sale/ Turnover/ gross receipts whichever is lesser.
• Failure of assessee to furnish Audit report related to foreign transaction, a penalty @ ₹1,00,000 will be payable

TDS/TCS

• Where a person fails to deduct tax at source, he will be liable to pay a penalty equal to the amount of tax which he has failed to deduct/ pay.
• Where a person fails to collect tax at source, he will be liable to pay a penalty equal to the amount of tax which he has failed to collect.
• Failure to furnish TDS/TCS statement or furnishing incorrect statements, shall attract a penalty ranging from ₹10,000 to ₹1,00,000
• Failure to furnish information/ furnishing inaccurate information related to TDS deduction related regarding Non residents shall attract a penalty of ₹1,00,000

Penalty for using modes other than Account payee cheque/draft/ ECS

• If a person takes/accepts loan/ deposit except by way of Account payee cheque/account payee draft/ ECS, and if the aggregate amount exceeds ₹20,000, he shall be liable to pay a penalty of an amount equal to such loan/ deposit.
• If, an amount of ₹2,00,000 or more is received in aggregate from a person in a day/ single transaction/ relating to one event, a penalty equal to such amount will be payable.
• If a person repays loan/ deposit and such amount so repaid exceeds ₹20,000 and such amount has been repaid except by way of Account payee cheque/ account payee draft/ ECS, an amount equal to such loan/ deposit shall be payable.

Failure to furnish statements/ information

• Failure to furnish a statement of financial transaction or reportable account shall attract a penalty of ₹500 for each day of failure. And if the failure is in response to a notice to report on specified financial transaction, the penalty shall be ₹1,000 for each day of failure
• A penalty of ₹50,000 shall be attracted for furnishing inaccurate statement of a financial transaction/ reportable account
• Failure of an eligible investment fund to furnish any statement / information/ documents within the prescribed time shall attract a penalty of ₹5,00,000
• Failure to furnish any information/ document in relation to international transaction shall attract a penalty of 2% of the value of such transaction
• Failure to furnish any information/ document by an Indian Concern related with international transaction, shall attract a penalty of 2% of the value of transaction or ₹50,000 in some cases.
• If a report/ certificate is required to be furnished by an Accountant/ Merchant Banker/ Registered Valuer and such information is found to be incorrect, a penalty of ₹10,000 for each incorrect report/ information is payable
• Failure to furnish information by any person who is attending/ helping carrying the business/ profession of any person, in whose building/ place the income tax authority has entered for collecting information shall attract a penalty of upto ₹1,000
• Non furnishing of report by any reporting entity which is obliged to furnish Country by Country report will attract penalty as follows:

Others

• Failure to apply/quote/ intimate PAN/ quoting false PAN shall attract a penalty of ₹10,000
• Failure to apply/quote TAN/ quoting false TAN shall attract a penalty of ₹10,000
• In case of the following defaults, ₹10,000 will be the penalty leviable,
  • Refusal to answer questions put by the department
  • Refusal to sign statements made in income tax proceedings
  • Non compliance with summons to give evidence/ produce books of accounts
  • Failure to comply with a notice

Frequently Asked Questions

Will multiple penalties be charged from the same taxpayer?

Yes, multiple penalties can be charged from the same taxpayer if he/she is guilty of various chargeable offences.

Can the penalty for default in tax payment be waived off if the self-assessment tax is paid?

No, the penalty for default in tax payment cannot be waived off only because the taxpayer has paid the self-assessment tax before the levy of the penalty.

Can the penalty for misreporting or underreporting of income be waived off?

Yes, under section 270AA, taxpayers can ask the assessing officer to grant immunity from penalty under section 270A after fulfilling the following conditions:

• Tax and interest in the assessment order are paid within the time provided in the demand notice
• No appeal is made for the assessment order

A proper application for such waive-off has to be made within one month from the end of the month of the order receiving date.

For which defaults can the Assessing Officer waive off the imposition of penalties when the taxpayer proves reasonable cause for failure of default?

If the taxpayer proves a reasonable cause for failure or making defaults listed in section 273B, the penalty proceedings may be waived off by the Assessing Officer. Some of the examples of defaults listed are:

• Failure to keep, retain or maintain books of account, documents, etc., as per section 44AA, deduct TDS/TCS, TDS/TCS return
• False estimate or failure to pay advance tax

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