Finance Bill 2016, has proposed to bring a big overhaul to the income tax regime with respect to penalty in the income-tax. Previously the regime offered for an imposition of penalty, for concealing income or furnishing wrong income, an amount between 100 percent to 300 percent of the tax which is sought to have been evaded.
The new projected system categorizes all deviations made to the income into 2 categories – ‘misreporting’ and ‘under-reporting’. The penalties are pegged at 50 percent and 200 percent of the given tax base calculated on the misreported or under-reported income. The changes are projected to be employed from AY 2017-18.
Penalty could be imposed by AO, Commissioner Appeals, Principal Commissioner.
| Situation | Under-reporting | Quantum |
| Assessment of a return filed
|
If the income assessed is more than the assessed amount | Income Assessed – Assessed Amount |
| Assessment without return (In case of individuals) | If the income assessed is more than minimum exemption slab | Income Assessed – Minimum exemption slab |
| Assessment without return (In case of non-individuals) | Note 1 | Income Assessed |
| Re-assessment | If the income reassessed is more than income assessed before | Income reassessed – Income Assessed before |
| Loss reduced or converted into income | If the returned loss got reduced on assessment | Returned loss – Assessed loss |
| Loss reduced or converted into income | If the assessed loss got reduced on reassessment | Assessed loss – Reassessed loss |
Note 1: In case of assessment where return has not been furnished by a firm, company, etc. the assessed income will be the under-reported income
Misreporting of Income
A taxpayer will be said to have ‘misreported’ his income, if:
- The assessee has misrepresented or has suppressed the facts
- The assessee has failed in recording any investments in his books of account
- The assessee has claimed such expenditure which is not substantiated by any evidence
- The assessee has failed in recording the receipts in his books of account
- The assessee has recorded any false entry in his books of account
Base tax for imposing penalty
For individuals, the tax base for imposing of penalty is 30 percent of income under-reported. For Company, Firm and Local Authority, the tax rate will be applied to income under-reported as if it is the total income.
The Bottom Line
It is worth appreciating that the necessary components of the penal provision such as (a) not being a compulsory imposition and (b) retaining room for a bona-fide conduct. The provision looks for providing a clear separation between a malicious under-reporting of income and un-intended under-reporting of income and thereby treats the intentionally evading tax harshly. It is a great step in a better direction of the tax regime. With this process the proposed provision routines certain expressions such as ‘false entry’ , ‘suppression or misrepresentation of facts’, etc. for appreciating which the assessee may look at jurisprudence developed under several tax laws.
