Penalties for Tax Evasion in India

Introduction to Tax Evasion

Tax evasion refers to any attempt to avoid payment of taxes by using illegal means. Some of the common forms of tax evasion are:

• reporting less than actual income,
• submitting false tax returns,
• improperly claiming tax deductions,
• hiding money in overseas accounts,
• using fake documents to claim exemption,
• falsely claiming or inflating the charitable deductions etc.

Every citizen and business has the right to take advantage of the provisions given in Income Tax Act but only within the ambit of law. However, avoiding payment of necessary taxes through illegal measures is a criminal offence and can attract severe penalties in India.

With the passage of time, penalties for non-compliance have been increased to widen the tax base and increase tax revenue and the compliance with respect to income tax payment is being tracked more accurately by the Income Tax Department due to advancement in technology. Hence, income tax compliance must be taken seriously by all individuals and entrepreneurs.

Following are the penalties which could be levied for tax evasion in India:

Failure to Pay Tax as per Self-Assessment

The tax payer will be treated as a default person if the tax payer fails to pay either wholly or partly self-assessment tax or interest as per section 140A(1). As per section 221(1), a penalty amount will be imposed by the assessing officer if the assessee is declared as a default person. The criterion for penalty is that it cannot exceed the arrear amount. Therefore the penalty imposed on not making payment of self-assessment tax is solely at the discretion of the assessing officer.

The assessing officer can even exempt the assessee from paying penalty if the tax payer is able to provide justified reasons for the delay in paying the tax.

Tax Evasion by Concealing Income

Concealment of income means not disclosing the known income in the income tax return. As per section 271(C), the penalty for concealment of income will be 100% to 300% of the tax evaded.

If income tax authorities feel the necessity to raid a premise to discover the undisclosed income of the tax payer in such case the penalty levied will be under section 271 AAB. The penalty varies under different scenarios:

• If the tax payer admits the undisclosed income: In such case only 10% of the previous year’s undisclosed amount along with interest will be required to be paid.
• If the tax payer does not disclose the undisclosed amount but does so in the return of income furnished in the previous year: in such case the penalty would be 20% of the undisclosed amount along with interest.
• If the amount is undisclosed for the previous year: In such case, minimum 30% and maximum 90% penalty can be levied.

Failure to Pay Tax as per Demand Notice

The tax payer has to pay the amount in 30 days to the department and the person mentioned in the notice, if a demand notice is sent to the tax payer asking for payment of tax. The tax payer will be treated as a default assessee for failure to make the payment and will incur further penal provisions as well.

Failure to Comply with Income Tax Notice

If the tax payer fails to comply with the notice issued under section 142(1) or 143(2) then the assessing officer can issue a notice to the tax payer asking

• to file the return of income
• ask the tax payer to furnish in writing all the details of assets and liabilities

Penalty for Not Filing Income Tax Return

If the return of income is not furnished as required under section 139, sub section (1) then the assessing officer can penalize the tax payer with a penalty of Rs. 5000/-.

Penalty for NOT Getting Accounts Audited

• A penalty of one half percent of total sales, turnover of the gross receipts or Rs.1,50,000/- will be incurred if the taxpayer fails to get the account audited or furnish a report of audit required under section 44AB.
• If the tax payer fails to present a report from an accountant as required under section 92E then the penalty incurred will be Rs.1,00,000/- or more. It is mandatory to document every domestic or international transaction and get a report from a chartered accountant in India on or before the requested date to avoid the penalty.
• If any documents are not furnished or attached under section 92(D) 3 then a penalty of 2% of the value of the transaction (international or domestic) will be imposed.

Failure to Comply with TDS Regulations

• If a person deducts tax at source or collects tax at source, he is required to collect the tax deduction account number or the tax collection account number (TAN). The failure to obtain this tax deduction or collection number calls for a penalty of Rs 10,000.
• If tax is not collected at source then the penalty levied would be the amount equal to the tax that was not deducted or paid. If the tax payer fails to file TDS/TCS returns before the due date then the taxpayer is liable to pay taxes for each day till the date the payment is made. The penalty imposed for not filing TDS/TCS returns before the due dates can start from Rs.10,000/- and go up to Rs.1,00,000/-.

Failure to Pay Dividend Distribution Tax

If a company fails to pay dividend distribution tax on the dividends it has paid, then as per section 115-0, the penalty incurred would be the amount equal to the tax that was not deducted or paid.

Failure to Retain Information & Documents

A penalty of an amount equal to 2% of the value of each international or domestic transaction will be attracted on failure to retain appropriate information, documentation and more pertaining to international or domestic transaction. Each transaction copy has to be maintained for an eight year period. When demanded by the Income tax authorities the documents should be presented to the officer within 30 day period. Failure to do so will attract penalty.

Failure to Furnish Accurate Information

A penalty of Rs.50,000/- may be incurred if a tax payer does not furnish accurate information or finds out inaccuracy of the furnished details after submission but does not get it corrected within ten days of submission or knows about the inaccuracy during submission but does not inform the income tax authority.

Considerations

The Assessing Officer usually does not pursue criminal charges if the taxpayer comes forward and files amended tax returns of their own volition and begins to pay the debt. Also, the income tax department tends to forgive those volunteering assesses who offer tax on their own.

Prevention

Since Tax evasion is a criminal offence in India, one should avoid evading tax to prevent self from the penal provisions. If by some reason you are unable to file your return on time, you can always request an extension through the Assessing Officer. If you still owe taxes from previous years, it is best to pay on this debt as quickly as possible. Even if you have not filed returns in years, it is wise to begin filing now, before the Income tax department discovers the omission.