WHAT ARE THE PENALTIES FOR EVADING INCOME TAX IN INDIA?

Tax is a compulsory charge inflicted by the Government of India on income, commodity, or activity. It constitutes the basic source of revenue for the Government that is further utilized for development like Infrastructure, Education, Healthcare and Defence, etc. There are some mandatory types of taxes like Income Tax, Goods and Services Tax and Customs Duty, etc., which a person has to give to the concerned authorities. However, many times people try to evade these taxes through various means and modes. In this article, we will study what are the penalties if one tries to evade Income Tax.

What is Tax Evasion?

Tax evasion is defined as any activity done in respect of hiding, understating, or falsely reporting an income to reduce the tax liability can be termed as tax evasion. It is done purposefully to avoid paying the tax liability. Considered to be a fraud, it attracts criminal liability under federal and state statutes.

Most tax evasions are done in income tax filing because people usually avoid paying Income tax returns and filings to save money. To curb this practice and bring more transparency, the Income Tax department has introduced certain stringent laws and penalties that ensure that all the tax dues are duly taken care of, minimizing the fraud. 

Penalties for Tax Evasion 

As per the Law, evading income tax filing is a punishable offense, and severe penalties are imposed on the defaulter. The penalties depend upon the fraud committed and to the extent of the unpaid tax.

Hiding or Misrepresenting Your Income

Most of the time, taxpayers try to conceal their original income or earnings and show a lower income to evade taxes which is prohibited by law. As per Section 271 (C) of the Income Tax Act, 1961, if any person tries to conceal their income from the government through any medium, the penalty for concealment shall be imposed upon them, which can be 10% to 200% of the amount of the tax due. The criteria to decide the penalty is as follows:-

• If the taxpayer owns up or agrees to disclose the undisclosed income, then a penalty of 10% on the previous year s income that is due is levied upon. 

• If non-payment of tax was due to any bonafide mistake on the taxpayer's part, then a penalty of 50% on the amount of income due is imposed. However, the mistake should be bona fide and not mala fide.

• If the whole act was done to evade tax, then a penalty of 200% is imposed on the amount hidden or understated. 

Failing to File taxes within due time

A taxpayer's liability is not limited to the payment of taxes; it extends to timely payments of taxes. Section 139 (1) of the Income Tax Act makes filing taxes mandatory, and section 234f of the Income Tax Act indicates the penalty for late filing of ITR. With a view of timely filing of taxes, provisions of the 234F penalty were brought to ensure that all taxpayers timely pay their dues—a penalty of Rs. 5,000 is imposed on a taxpayer if they do not file their tax till 31st December and of Rs. 10,000 in other cases, which is at the discretion of the assessing officer. 

Non-compliance with TDS provisions

As we know, every person who deducts tax at source or collects tax at source should have a tax account number (TAN). Failure to do so may result in a penalty of Rs. 10000. 

If tax is not collected at the source, then the penalty would be the equal amount that is not deducted. If any taxpayer fails to file a TDS/TCS return, they are liable to pay taxes for each day until the date of payment; it can be between Rs. 10,000 to Rs. 1,00,000.

Failure to furnish correct information to the department

As per the Income-tax Act, if any person fails to furnish a statement of financial transaction or reportable account, it shall attract a penalty of Rs. 500 for each day of failure and a penalty of Rs. 50,000 shall be imposed if any person gives any false or fabricated statement regarding a financial transaction. In the case of international transactions, a penalty of 2% of the value of the transaction is attracted if documents are found to be false or incorrect.

Ignoring a Demand Notice from Income Tax Department

Whenever there is any discrepancy found in the taxes due by the Income-tax Department, it issues demand notice for clarifications and payment of pending taxes. The receiver is given time for 30 days to reply to that notice failure, which may result in a heavy penalty. 

Evading tax is a serious offense and should be avoided at all costs. With the help of technology, the tax department can now easily detect who and when has not paid their tax dues. So in order to avoid unnecessary penalties and punishments, one should pay their taxes honestly and timely. 

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Author Bio: Adv. Siddhanth Deshpande is an accomplished legal professional with a strong background in criminal and civil law. In his 8 years legal career, he has practiced in several courts in Mumbai and Pune, including the Hon'ble High Court at Bombay, city, civil and sessions courts, as well as district and family courts in Greater Mumbai, Pune, Kolhapur, Ahmednagar, and beyond. Siddhanth handles a wide range of legal matters, from criminal and civil cases to family law and election matters. Siddhanth is dedicated to providing comprehensive legal representation to his clients, ensuring access to justice across Maharashtra.