Income Tax Penalties Under the Income Tax Act
Payment of income tax is a mandatory duty of every tax-payer who has an income. If the taxpayer commits errors or fraud in the payment of tax or in case of any other tax-related matters, income tax penalties are levied. The Income Tax Act has designed various types of penalties for different acts of mistakes or errors done by the taxpayer. These penalties impose a punishment on the taxpayer for not complying with the Income Tax rules specified under the Income Tax Act.
Here are some of the most common income tax penalties which are levied by the income tax department –
|Section||Default Description||Amount of Penalty|
|140A(3)||Failure to pay wholly or partly—||Such amount as Assessing Officer may impose but not exceeding tax in arrears|
|(a) self-assessment tax, or|
|(b) interest and fee, or|
|(c) both under section 140A(1)|
|158BFA(2)||Determination of undisclosed income of block period||Minimum: 100 percent of tax leviable in respect of undisclosed income|
|Maximum: 300 per cent of tax leviable in respect of undisclosed income.|
|221(1)||Default in making payment of tax||Such amount as Assessing Officer may impose but not exceeding the amount of tax in arrears|
|234E||Failure to file a statement within the time prescribed in section 200(3) or in the proviso to section 206C(3)||Rs. 200 for every day during which failure continues but not exceeding tax deductible/collectible|
|234F||Default in furnishing return of income within the time prescribed in section 139(1)||Rs. 5,000 if the return is furnished after the due date specified under section 139(1). However, if the total income of the person does not exceed Rs. 5 lakhs, then Rs. 1,000 shall be the late filing fees.|
|234G||Fee for default in the submission of statement/certificate prescribed under section 35/ Section 80G||Rs. 200 per day|
|234H||Fee for default in intimating the Aadhaar Number||Maximum of Rs. 1,000|
|270A(1)||Under-reporting and misreporting of income||A sum equal to 50% of the amount of tax payable on under-reported income. However, if under-reported income is in consequence of any misreporting thereof by any person, the penalty shall be equal to 200% of the amount of tax payable on under-reported income|
|271(1)(b)||Failure to comply with a notice under section 115WD(2)/115WE(2)/142(1) or section 143(2) or failure to comply with a direction under section 142(2A)||Fixed at Rs. 10,000 for each failure. Note:- However, the above penalty shall not be levied to and in relation to any assessment for the A.Y commencing on or after the 1st day of April 2017.|
|271(4)||Distribution of profits by registered firm otherwise than in accordance with partnership deed and as a result of which partner has returned income below the real income.||Not exceeding 150 per cent of the difference between the tax on partner's income assessed and tax on income returned, in addition to tax payable|
|Note:- However, the above penalty shall not be levied to and in relation to any assessment for the A.Y commencing on or after the 1st day of April 2017.|
|271A||Failure to keep, maintain, or retain books of account, documents, etc., as required under section 44AA||Rs. 25,000|
|271AA(1)||(1) Failure to keep and maintain information and documents required by section 92D(1) or 92D(2)||2% of value of each international transaction/or specified domestic transaction entered into|
|(2) Failure to report such transaction|
|(3) Maintaining or furnishing incorrect information or document|
|271AA(2)||Failure to furnish information and document as required under Section 92D(4)||Rs. 5,00,000/-|
|271AAA||Where search has been initiated before 1-7-2012 and undisclosed income found||10% of undisclosed income|
|271AAB(1)||Where search has been initiated on or after 1-7-2012 but before 15-12-2016 and undisclosed income found||(a) 10% of undisclosed income of the specified previous year if assessee admits the undisclosed income; substantiates the manner in which it was derived; and on or before the specified date pays the tax, together with interest thereon and furnishes the return of income for the specified previous year declaring such undisclosed income|
|(b) 20% of undisclosed income of the specified previous year if assessee does not admit the undisclosed income, and on or before the specified date declare such income in the return of income furnished for the specified previous year and pays the tax, together with interest thereon;|
|(c) 60% of undisclosed income of the specified previous year if it is not covered by (a) or (b) above|
|271AAB(1A)||Where search has been initiated on or after 15-12-2016 and undisclosed income found||(a) 30% of undisclosed income of the specified previous year if assessee admits the undisclosed income; substantiates the manner in which it was derived; and on or before the specified date pays the tax, together with interest thereon and furnishes the return of income for the specified previous year declaring such undisclosed income (b) 60% of undisclosed income of the specified previous year in any other case.|
|271AAC||Income determined by Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C, or section 69D for any previous year. [if such income is not included by the assessee in his return or tax in accordance with section 115BBE has not been paid]||10% of tax payable under section 115BBE.|
|271AAD||Penalty, if during any proceedings under the Act, it is found that in the books of accounts maintained by the assessee, there is: a) A false entry; or b) Any entry relevant for computation of total income of such person has been omitted to evade tax liability.||100% of such false entries or omitted entry.|
|271B||Failure to get accounts audited or furnish a report of audit as required under section 44AB||One-half percent of total sales, turnover or gross receipts, etc., or Rs. 1,50,000, which-ever is less|
|271BA||Failure to furnish a report from an accountant as required by section 92E||Rs. 1,00,000|
|271BB||Failure to subscribe any amount to units issued under the scheme referred to in section 88A(1)||20 percent of such amount|
|271C||Failure to deduct tax at source, wholly or partly, under sections 192 to 196D (Chapter XVII-B) or failure to pay wholly or partly tax u/s 115-O(2) or second proviso to section 194B||Amount equal to tax not deducted or paid|
|271CA||Failure to collect tax at source as required under Chapter XVII-BB||Amount equal to tax not collected|
|271D||Taking or accepting any loan or deposit or specified sum in contravention of the provisions of Section 269SS. "Specified sum" means any sum of money receivable, whether as advance or otherwise, in relation to the transfer of immovable property, whether or not the transfer takes place.||Amount equal to loan or deposit or specified sum so taken or accepted|
|271DA||Receiving an amount of Rs. 2 lakh or more from a person in a day [section 269ST]||Amount equal to such receipt|
|271DB||Failure to provide facility for accepting payment through prescribed electronic modes of payment as referred to in section 269SU||Rs. 5,000 rupees for every day of Default|
|271E||Repayment of any loan or deposit or specified advance otherwise than in accordance with the provision of Section 269T. "Specified advance" means any sum of money in the nature of advance, by whatever name called, in relation to the transfer of immovable property, whether or not the transfer takes place.||Amount equal to loan or deposit or specified advance so repaid|
|271FA||Failure to furnish an annual information return as required under section 285BA(1)||Rs. 500 per day of default|
|271FAA||Furnishing of inaccurate information in the statement of financial transaction or reportable account||Rs. 50,000|
|Failure to furnish annual information return within the period specified in notice u/s 285BA(5)||Rs. 1,000 per day of default|
|271FAB||Section 9A provides that fund management activity carried out by an eligible offshore investment fund through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India (subject to certain conditions). The provision requires that eligible investment fund shall furnish within 90 days from the end of the financial year a statement, in respect of its activities in a financial year, in the prescribed form containing information relating to fulfillment of specified conditions and such other information or documents as may be prescribed. Penalty to be levied if the investment fund failed to comply with the requirement.||Rs. 5,00,000|
|271G||Failure to furnish any information or document as required by section 92D(3)||2% of the value of the international transaction/specified domestic transaction for each failure|
|271GA||Section 285A provides for reporting by an Indian concern if following two conditions are satisfied: a) Shares or interest in a foreign company or entity derive substantial value, directly or indirectly, from assets located in India; and b) Such foreign company or entity holds such assets in India through or in such Indian concern. In this case, the Indian entity shall furnish the prescribed information for the purpose of determination of any income accruing or arising in India under Section 9(1)(i). In case of any failure, the Indian concern shall be liable to pay penalty.||The penalty shall be: a) a sum equal to 2% of value of the transaction in respect of which such failure has taken place, if such transaction had effect of, directly or indirectly, transferring right of management or control in relation to the Indian concern; b) a sum of Rs. 5,000 in any other case.|
|271GB(1)||Failure to furnish report under section 286(2)||Rs. 5,000 per day upto 30 days and Rs. 15,000 per day beyond 30 days|
|271GB(2)||Failure to produce the information and documents within the period allowed under section 271GB(6)||Rs. 5,000 for every day during which the failure continues.|
|271GB(3)||Failure to furnish a report or failure to produce information/documents under section 286, even after serving an order under section 271GB(1) or 271GB(2)||Rs. 50,000 for everyday for which such failure continues beginning from the date of serving such order.|
|271GB(4)||Failure to inform about inaccuracy in reports furnished under section 286(2) Or the furnishing of inaccurate information or documents in response to the notice issued under section 286(6).||Rs. 5,00,000|
|271H||Failure to deliver/cause to be delivered a statement within the time prescribed in section 200(3) or the proviso to section 206C(3), or furnishes incorrect information in the statement||W.e.f. 1-10-2014 Assessing Officer may direct payment of penalty. The penalty shall not be less than Rs. 10,000 but may extend to Rs. 1,00,000|
|271K||Penalty of default in the submission of statement/certificate prescribed under Section 35/Section 80G||Rs. 10,000 to Rs. 1 lakh|
|271-I||As per section 195(6) of the Act, any person responsible for paying to a non-resident or to a foreign company, any sum (whether or not chargeable to tax), shall furnish the information relating to such payment in Form 15CA and 15CB. The penalty shall be levied in case of any failure.||Rs. 1,00,000|
|271J||Furnished incorrect information in any report or certificate by an accountant or a merchant banker or a registered valuer||Rs. 10,000 for each incorrect report or certificate|
|272A(1)||Refusal or failure to||Rs. 10,000 for each failure/default|
|(a) answer questions|
|(b) sign statement|
|(c) attend to give evidence or produce books of account, etc., in compliance with a summon under section 131(1)|
|(d) comply with notice u/s 142(1), 143(2) or failure to comply with the direction issued u/s 142(2A).|
|(a) furnish the requisite information in respect of securities as required under section 94(6);||Rs. 10,000 for each failure/default. (In respect of penalty for failure, in relation to a declaration mentioned in section 197A, a certificate as required by section 203 and returns u/ss 206 and 206C and statements under Section 200(2A) or section 200(3) or proviso to section 206C(3) or section 206C(3A), the penalty shall not exceed the amount of tax deductible or collectible)|
|(b) give notice of discontinuance of business or profession as required under section 176(3) ;|
|(c) furnish in due time returns, statements or certificates, deliver declaration, allow inspection, etc., under sections 133, 134, 139(4A), 139(4C), 192(2C), 197A, 203, 206, 206C, 206C(1A) and 285B;|
|(d) deduct and pay tax under section 226(2)|
|(e) file a copy of the prescribed statement within the time specified in section 200(3) or the proviso to section 206C(3) (up to 1-7-2012)|
|(f) file the prescribed statement within the time specified in section 206A(1)|
|(g) Failure to deliver or cause to be delivered a statement under Section 200(2A) or Section 206C(3A) within prescribed time. With effect from June 1, 2015, it is mandatory for an office of the Government, paying TDS or TCS, as the case may be, without production of a challan, to deliver a statement in the prescribed form and manner to the prescribed authority.|
|272AA(1)||Failure to comply with section 133B||Not exceeding Rs. 1,000|
|272B||Failure to comply with provisions relating to PAN or Aadhaar as referred to in section 139A/139A(5)(c)/(5A)/(5C)||Rs. 10,000 for each default|
|272BB(1)||Failure to comply with section 203A||Rs. 10,000 for each failure/default|
|272BB(1A)||Quoting false tax deduction account number/tax collection account number/tax deduction and collection account number in challans/certificates/statements/documents referred to in section 203A(2)||Rs. 10,000|
Watch this video to learn more about penalties under Income Tax Act.
Penalty for non-intimation of Aadhaar number
A new section 234H has been introduced by the Finance Bill 2021. The section specifies payment of a fee up to Rs 1000/- for not intimating your Aadhaar number. If you are required to furnish your AADHAR number to Income Tax Authorities and fail to do so, in such a case, this fee will be applicable. One common instance can be the non-linking of PAN and Aadhaar by the due date.
It is important to note that every person who has been allotted PAN on or before 1 July 2017 is required to link it to his/her AADHAAR number, else the PAN card will become inoperative, and all the procedures in which PAN is required will become halted.
|AADHAAR - PAN Linking||1st April 2022- 30 June 2022||500/-|
|AADHAAR - PAN Linking||30 June 2022- 31st March 2023||1000/-|
|In case of non-linking||After 31st March 2023||PAN will become inoperative|
Penalty for default in tax payment
A demand notice can be sent by the income tax department to the tax-payer for payment of tax, penalty, fine, interest or any other sum payable under Section 156. After receiving the notice, if the taxpayer does not pay the tax due within 30 days of getting the notice, a penalty for default in tax payment would be levied. The amount of penalty would depend on the Assessing Officer, and it would not exceed the total tax due
Penalty for default in paying Self-Assessment Tax
If the tax-payer is supposed to pay a self-assessment tax under the provisions of Section 140A (1) and if such self-assessment tax is not paid (either partly or fully) within the specified period, a penalty would be levied. The amount of penalty would again depend on the Assessing Officer, and it would not be more than the total tax due. Moreover, if the assessee fails to provide the return of income within the specified due date, a fee would be payable. This fee would be INR 5000 if the returns are furnished on or before 31st December of the assessment year. Moreover, if the total income is up to INR 5 lakhs, the fee would be INR 1000.
Penalty for underreporting and misreporting of income
Under-reporting of income means showing a lower income than earned so that the tax liability is reduced. If the income of the taxpayer is found to be higher than the income reported, a penalty would be levied for under-reporting of income under section 270A. The penalty would be equal to 50% of the tax liability calculated on the under-reported income. If, however, the taxpayer has resorted to misreporting income so that the income can be under-reported, the penalty would increase. In such cases, the penalty would be 200% of the tax liability calculated on the misreported income.
Penalty for not maintaining books of accounts and/or other required documents
As specified under the Income Tax Act, taxpayers are required to maintain their books of accounts according to Section 44AA. If such books of accounts are not maintained as per the provisions of this Section, a penalty would be payable under Section 271A. The amount of penalty would be INR 25,000.
If the taxpayer has entered into an international transaction, information and documentation of such transaction are required to be maintained. The income tax department might require the submission of these documents, and if the taxpayer fails to submit the required documents within 30 days of their demand, a penalty would be levied under section 271AA. The penalty would be 2% of the value of the international transaction or specified domestic transactions. If the taxpayer is an entity of the international group, the penalty might increase to INR 5 lakhs.
Penalty if a search discloses unreported income
Tax authorities usually conduct a search of the taxpayer's premises to find undisclosed income. In the case of such searches, if the tax authorities find undisclosed income, a penalty would be levied on such income under the provisions of Section 271AAB. The quantum of penalty would be as follows –
30% of the undisclosed income discovered by the tax authorities will be payable as a penalty. The assessee should admit the undisclosed income, give its source, and pay tax on the income along with interest on or before the due date. The tax return of the assessee should contain the undisclosed income.
If, however, the above-mentioned conditions are not fulfilled, the penalty would be 60% of the undisclosed income.
Penalty for income from undisclosed sources
If the tax-payer has a source of income that is undisclosed and if such an income is found by the Assessing Officer, the income would be added to the income of the tax-payer as undisclosed income under Sections 68, 69, 69A, 69B, 69C and 69D. When the undisclosed income is added under these sections, a penalty would be levied. The penalty would be 10% of the tax payable by the taxpayers. This penalty can be removed if the tax-payers discloses the source of income in his/her income tax return and pays the proportionate tax on the same.
Penalty for not getting the accounts audited or for not submitting an audit report
Section 44AB of the Income Tax Act specifies the conditions under which the accounts of the taxpayer should be audited. If the taxpayer's accounts are supposed to be audited under the provisions of Section 44AB and an audit has not been done, a penalty would be levied on the taxpayer. Even if the taxpayer does not furnish an audit report, the penalty would be applicable under section 271B. The amount of penalty would be one-half percent of turnover/sales/gross receipts of the business or INR 1.5 lakhs, whichever is lower.
Penalty for not providing an accountant’s report
Under the provisions of Section 92E of the Income Tax Act, taxpayers who enter into an international transaction or into a specified domestic transaction are required to get a report from a Chartered Accountant. The report should be in a specified form and should be furnished on or before the specified date. If these conditions are not met, and the taxpayer does not submit a Chartered Accountant’s report, a penalty would be charged, which would be INR 1 lakh under section 271BA.
Penalty for not deducting tax at source or for not paying dividend distribution tax
Chapter XVII – B states the conditions wherein the tax-payer is required to deduct TDS. Moreover, Section 115-O states that the company paying dividends is required to deduct DDT from the dividends before they are distributed. If the taxpayer does not deduct TDS or the company does not pay DDT, a penalty would be charged under section 271C. The penalty would be the amount of TDS not deducted or the amount of DDT not paid.
Penalty for non-payment of tax on lottery or crossword puzzle winnings
Winnings from lotteries, card games, crossword games, etc., should be paid after deducting the applicable tax if the winning is more than INR 10,000. If, on the other hand, the winning is partly in cash and partly in kind and the cash winning is below INR 10,000, the winning can be paid without deducting tax. However, in that case, the person paying the winning should ensure that tax is paid by the winner on the cash amount received. If these conditions are not met, a penalty would be levied under section 271C, which would be equivalent to the tax not paid on the winnings.
Penalty for accepting or repaying loans or deposits in non-acceptable modes
Under Section 269SS, loans or deposits exceeding INR 20,000 should be accepted only through account payee cheques, demand drafts, or bank ECS. If any other mode of accepting loans or deposits is used, a penalty would be levied under section 271D. The amount of penalty would be the amount of loan or deposit accepted by the taxpayer. The same rule applies when repaying loans or deposits exceeding INR 20,000, and the penalty under section 271DA would be the amount of loan or deposit received by the taxpayer.
Penalty for collecting INR 2 lakhs or more in non-acceptable modes
Under section 269T, an amount of INR 2 lakhs or above is taken from one person in one day or for a single transaction or for multiple transactions pertaining to one event or occasion, should not be taken in any mode other than account payee cheques, demand drafts or bank ECS. However, if the taxpayer receives such an amount in any mode other than specified modes, a penalty would be applicable under section 271E, which would be the amount received by the taxpayer.
Penalties for failing to furnish statements of financial transactions or reportable accounts
The statement of financial transactions and reportable accounts are required to be furnished to tax authorities in specified formats and within the specified dates. Failure in meeting the format or in delaying the submission of such reports would result in penalties. The penalties would be as follows
- INR 500 per day if the reports are not furnished under Section 271FA,
- INR 1000 per day if the tax department sent the tax-payer a notice under Section 285BA (5), and the reports were not furnished within 30 days of receiving such notice
- INR 50,000 if the reports that are furnished are inaccurate in any way under Section 271FAA
- INR 1 lakh if an investment fund does not submit a statement is required by the income tax department regarding its activities
- If the tax-payer has entered into an international transaction or a specified domestic transaction and has not furnished the required financial statements, a penalty of 2% of the value of the transaction would be levied under Section 271G
- If the reporting entity is part of an international group and does not furnish the financial statements as per Section 286 (2), a penalty would be INR 5000 per day if the delay is up to one month. If any delay exceeds, one-month penalty would be INR 15,000 per day. Moreover, in case of inaccurate information in the reports, a penalty would be INR 5 lakhs
- If the Indian assets of an Indian company are held by a foreign company, the Indian company is required to submit some reports on such assets under Section 285A. If the reports are not submitted, the penalty would be 2% of the value of the transaction or INR 5000, depending on the case. Following are the possible cases -
- INR 10,000 if an accountant, merchant banker, or registered valuer provides incorrect information in a financial report under Section 271J,
- INR 1 lakh if payment is made to an NRI or a foreign company and reports of such payment are not furnished under Section 195 (6)
Penalty for non-filing of TDS/TCS certificates
If the TDS or TCS certificates are not filed within the due date, a penalty of INR 10,000 would be levied which might go up to INR 1 lakh under section 271H.
Penalty for not cooperating with tax authorities
If the taxpayer does not cooperate with tax authorities in respect of answering questions, signing statements, attending office to provide evidence of financial reports, and complying with notices sent to him/her, a penalty of INR 10,000 would be charged for each non-cooperative action.
Other types of penalties
There are the following types of penalties too, which are charged to taxpayers for different types of offenses –
- If the PAN number is not quoted, not applied for, not intimated, or quoted incorrectly, a penalty of INR 10,000 would be charged under section 272B.
- If the TAN number is not quoted, not applied for, not intimated, or quoted incorrectly, a penalty of INR 10,000 would be charged under section 272BB.
Relaxation of penalties
Though the above-mentioned penalties are charged in various instances, the Income Tax Act also specifies the ways to relax the penalty which is applicable. As per the provisions of Section 273A (4) of the Act, the Principal Commissioner or Commissioner of Income Tax has the power to reduce or cancel the penalty if the conditions specified in the section are fulfilled. Furthermore, Section 273B also lists exemption of penalty under various Sections if the taxpayer can show a just cause for the failure to comply with income tax rules.
Now that you have learned about the various penalties that you might have to face under the Income Tax Act, it is time to make sure you avoid these by staying vigilant and careful. Exercising a little prudence can help you avoid these penalties and make sure you don’t get entangled in the complexities of receiving and replying to notices. The best way out is to take professional advice. You can simply consult a CA and avoid getting income tax notices. Book an eCA now!
Frequently Asked Questions
Q- What types of tax-payers are liable for penalty?
All types of tax-payers, individuals, HUFs, NRIs, BOIs, etc., would be liable to a penalty if they fail to comply with income tax rules.
Q- Can multiple penalties be charged from the same tax-payer?
Yes, multiple penalties can be charged from the same tax-payer if the tax-payer has made several chargeable offences.
Q- How to avail relaxation in penalty?
You can avail of relaxation in paying penalty by fulfilling the conditions laid down in Section 273A (4) and Section 273B. You should approach the competent authority for getting relaxation from paying penalties.
Q- What is the penalty for underpayment of taxes?
The penalty for underpayment of taxes is assessed by A.O.A demand notice is issued under section 156 of the Act which states as demand notice.
Q- What are the penalties and interest on unpaid taxes?
The interest under Sections 234A, 234B, 234C will be levied on the amount not paid and the amount of penalty for any unpaid amount will depend on A.O.
Q- Can IRS penalties and interest be waived?
Yes IRS can waive penalties and interest. But it takes some time to negotiate with the IRS for a waiver or reduction.
Q- How can I reduce my IRS penalties and interest?
- Show them the legitimate reason for non-payment.
- Lower your income.
- Set up a good monthly payment plan.
Q- What is the punishment for evasion of income tax in India?
If any income is concealed penalty can be 100% to 300% of the taxes evade as per section 271(C).
Q- What is the penalty if I do not pay my income tax that is due before March 31?
Demand notice under section 156 is issued for underpayment of taxes, and a time of 30 days is provided and the penalty amount is assessed by A.O.
Q- What is the penalty for filing your taxes after 4/15?
There's a late filing penalty of 5% of the taxes owed for each month, or part of a month, and if your return is late, up to a maximum of 25%.
Q- How much is the penalty for filing your taxes late if you don’t owe any money or would be getting a refund?
There is no penalty for failing to file taxes late as the penalty is levied on the percentage of taxes owed.
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