Penalties for tax evasion

Tax evasion as an offence:

Tax evasion is an illegal act which occurs for failure to file income tax return or altering the tax amount which is to be paid. It differs from tax avoidance. Tax avoidance is legal as one can rightly use the tax laws to decrease the amount of tax to be paid.

When is penalty imposed?

A tax return is scrutinized when the income tax authorities suspect a tax evasion. When they are of the opinion that one has purposely concealed income to reduce tax liability, it imposes a penalty.

According to Section 271 (1)(c) of the Income Tax Act an A.O. or the CIT (A) can impose penalty for any concealment of income or for furnishing wrong particulars of income.

If the income tax officer finds that you have not disclosed your actual income, he will impose a penalty which can go up to 3 times of the concealed income. If someone has concealed an income of Rs. 20,000, he might be required to pay a penalty of Rs. 20,000 to Rs. 60,000.

What is scrutiny of income?

Scrutiny is evaluating the income tax return for checking its truthfulness. An Assessing Officer goes through the returns filed and its related documents like bank statement, Form 16 etc. to verify whether there is any discrepancy in tax assessed by the person and the original tax liability.

Procedure followed in case of scrutiny:

When any return is chosen for scrutiny, a notice is served within one year from the month of filing of the return. If someone files his return on 30.7.2013, then he will get notice within 29.7.2014. It has a particular format and contains details of the tax payer and a date for appearance of the tax payer before the concerned income tax officer.

What to do to avoid penalty?

At the time of filing a return on should consider all the important points. He has to take precautions since if his return is chosen for scrutiny due to any anomaly, other than the financial impact, he has to face great of mental agony. As such it is better to carefully state all his income to be on the safer side.

When no penalty is imposed:

When an assessee while declaring his total income gives an explanation which appears to be bona fide, there will no penalty imposed on him. In such a case it will not be considered as concealment of income by the assessee. But if the explanation of the assessee is not bona fide, penalty is imposed upon the assessee.

But one has to remember that each and every addition of income by the Assessing Officer will not invite imposition of penalty. Again no penalty is imposed for concealment when the Assessing Officer accepts the return filed under section 153A of the Income Tax Act.