Different kinds of penalties for defaults under the Income Tax Act

Penalty for default is imposed with the object to encourage tax compliance in India. The Income Tax Act, 1961 deals with different kinds of penalties for defaults under the Act. Chapters XVII and XXI of the Act, deals with the provisions in case of certain defaults. These are as follows:

1.       Penalty for failure to pay tax: When an assessee makes default in paying tax, he shall be liable to pay penalty as per direction of the Assessing Officer. In the case the default continues, such a person shall be liable to pay a further amount provided the total amount of penalty is not more than the amount of tax in arrears. This is provided in section Sec. 221(1) of the Act.

2.       Penalty for concealing income: Where an assessee has concealed any income which means that he has not shown such income in his return of income, or has filed inaccurate particulars of income, penalty is imposed in such cases which amounts to minimum 100% of the amount of tax aimed to be evaded and maximum 300% of the amount of tax aimed to be evaded. This is provided in Section 271(1) (c).

3.       Penalty for failure to comply with the provisions contained in section 133B: If someone does not comply with the provisions contained in section 133B relating to entry of Income Tax Authorities in any building, etc., he shall be liable to pay a penalty for such non compliance which may extend to Rs.1000/- This is provided in Section 272AA of the Act.

4.        Penalty for failure to comply with the provisions contained in section 139A:  If someone does not comply with the provisions contained in section 139A, the Assessing Officer may direct him to pay a penalty amounting to a sum of Rs.10, 000/- This is provided in Section272B of the Act.

If an assessee quotes a false permanent account number (PAN) on any document knowingly, the Assessing Officer may impose a penalty of Rs.10, 000/- upon him.

5.       Penalty for failure to comply with the provisions contained in Chapter XVIIB:   If someone fails to deduct whole or any part of tax at source (TDS) or fails to pay the same after deduction as per Chapter XVIIB of the Act, he shall be liable to pay a penalty amounting to tax not deducted or not paid.

6.       Using an incorrect PAN: If someone fails to quote PAN or uses a false PAN deliberately, such a person shall be liable to pay a penalty amounting to a sum of Rs.10, 000/-

7.       Failure to pay the advance tax: If someone fails to pay the advance tax as directed by the Assessing Officer or as estimated by the assessee as directed by the Assessing Officer or as estimated by him, the Assessing Officer may direct him to pay a penalty.  This is provided in Section 273(1) of the Act.

Limitations of imposing penalty:

However no penalty is imposed upon anybody unless he is given the opportunity of being heard as per Section 274(1) of the Act.

No order of penalty which is more than Rs. 10,000/- can be passed by an Assessing Officer without getting approval of the Joint Commissioner. Moreover, no order of penalty which is more than Rs. 20,000/- can be passed by the Assistant Commissioner without getting approval of Joint Commissioner. This is provided in Section 274(2) of the Act.

While deciding the quantum of penalty, the law becomes operative on the date when such default was committed by the assessee. In case of non-compliance of notice, default is said to have been committed on the date when the notice expires.