Introduction

Penalties under the Income Tax Act, 1961,(IT Act) are levied for various defaults made. Tax evasion and non-compliance can have serious consequences. The Income Tax Act, 1961, levies a range of penalties on taxpayers who fail to fulfill their tax obligations. This article will delve into some key sections of the Act that outline the penalties for not paying income tax in India.

1. Penalty under Section 221(1) of the Income Tax Act.

Section 221(1) of the Income Tax Act, 1961, deals with the penalties levied on taxpayers who fail to pay their taxes on time.

Consequences of Tax Default:

• Penalties: The primary consequence of tax default under Section 221(1) is the imposition of a penalty. The penalty amount is typically calculated as a percentage of the unpaid tax.
• Interest Charges: In addition to the penalty, interest is charged on the unpaid tax amount from the due date of payment until the date of actual payment.
• Reputational Damage: Tax defaults can damage a taxpayer's reputation and credibility, especially for businesses and professionals.
• Legal Action: In severe cases of persistent non-compliance, the Income Tax Department may initiate legal proceedings, which can include prosecution and further penalties.
• Penalty Rate: The penalty rate under Section 221(1) is generally 1% per month or part thereof on the unpaid tax amount. The maximum penalty is usually capped at the amount of the unpaid tax.

2. Fee Under Section 234E of the Income Tax Act.

Section 234E of the Income Tax Act, 1961, levies a fee on taxpayers who fail to furnish Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) statements within the prescribed deadlines.

Key Provisions:

• Late Filing Fee: A fee of ₹200 per day is charged for each day of delay in filing the TDS/TCS statements.
• Maximum Fee: The total fee under Section 234E cannot exceed the total amount of TDS or TCS that was required to be deducted or collected.
• Due Dates: TDS/TCS statements are typically required to be filed quarterly within specific deadlines.
• Fee under section 234F of the IT Act – For default in furnishing Return of Income

3. Fee Under Section 234F of the Income Tax Act.

Section 234F of the Income Tax Act, 1961, imposes a penalty on taxpayers who fail to file their Income Tax Return (ITR) before the due date.

Key Provisions:

• Late Filing Fee: A late filing fee is applicable if the ITR is filed after the due date.
• For taxpayers with a total income exceeding ₹5 lakhs: The fee is ₹5,000.
• For taxpayers with a total income below or equal to ₹5 lakhs: The fee is ₹1,000.

4. Penalty under Section 271H of the Income Tax Act.

Section 271H of the Income Tax Act, 1961, deals with the penalty for non-filing or incorrect filing of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) returns.

Key Provisions:

• Applicability: This section applies when a person fails to furnish a TDS/TCS statement within the prescribed time limit or furnishes incorrect information in such statements.
• Penalty Amount: The penalty under Section 271H can range from a minimum of ₹10,000 to a maximum of ₹1,00,000.
• Discretion of Assessing Officer: The Assessing Officer has the discretion to determine the appropriate penalty amount within this range based on the severity of the default and other relevant factors.

Circumstances where Penalty May Not be Levied:

• Reasonable Cause: If the taxpayer can demonstrate a reasonable cause for the delay or error in filing the TDS/TCS return.
• Filing Within One Year: If the TDS/TCS return is filed within one year from the prescribed due date, along with the payment of TDS/TCS, late filing fee under Section 234E, and applicable interest.
• Waiver or Reduction: The Commissioner of Income Tax may waive or reduce the penalty in certain circumstances.

5. Penalty under Section 271C of the Income Tax Act.

Section 271C of the Income Tax Act, 1961, imposes a significant penalty on any person who fails to deduct the whole or any part of the tax as required under Chapter XVII-B of the Act, which deals with Tax Deducted at Source (TDS).

Key Provisions:

• Severe Penalty: The most crucial aspect of Section 271C is the severity of the penalty. The penalty levied is equal to the amount of tax that the person failed to deduct. This can be a substantial financial burden, especially for businesses with high TDS obligations.
• Applicability: This penalty applies to any individual or entity responsible for deducting tax at source under various provisions of Chapter XVII-B, such as:
• Salaries paid to employees
• Payments to contractors
• Rent payments
• Interest payments
• Professional fees

6. Penalty under Section 271CA of the Income Tax Act.

Section 271CA of the Income Tax Act, 1961, imposes a penalty on any person who fails to collect Tax Collected at Source (TCS) as required under Chapter XVII-BB of the Act.

Key Provisions:

• Severe Penalty: The most crucial aspect of Section 271CA is the severity of the penalty. The penalty levied is equal to the amount of tax that the person failed to collect. This can be a substantial financial burden, especially for businesses dealing in transactions where TCS is applicable.

7. Penalty under Section 271A of the Income Tax Act.

Section 271A of the Income Tax Act, 1961, deals with the penalty for failure to maintain proper books of account and other relevant documents as required by law.

Key Provisions:

• Applicability: This section applies to any person who is required to maintain books of account or other documents under the Income Tax Act, but fails to do so. This includes businesses, professionals, and other entities.
• Penalty Amount: The penalty under Section 271A can be a significant amount, up to Rs. 25,000.

8. Penalty under Section 271AA of the Income Tax Act.

Section 271AA of the Income Tax Act, 1961, deals with the penalty for failure to maintain or furnish information and documents related to international transactions and specified domestic transactions. This section primarily focuses on ensuring accurate reporting and documentation for transactions that may have implications for transfer pricing adjustments.

Key Provisions:

• Applicability: This section applies to any person who is required to maintain and furnish information and documents related to international transactions and specified domestic transactions as per the provisions of Section 92D of the Act.

Penalties:

• Failure to Maintain/Furnish Information/Documents: If a person fails to keep and maintain any such information and document as required by Section 92D(1) or 92D(2), or fails to report such transaction as required, the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two percent of the value of each international transaction or specified domestic transaction entered into by such person.
• Failure to Furnish Information/Documents to Prescribed Authority: If a person fails to furnish the information and documents as required under Section 92D(4) to the prescribed income-tax authority, the prescribed income-tax authority may direct that such person shall pay, by way of penalty, a sum of five hundred thousand rupees.

9. Penalty under Section 271AAC of the Income Tax Act.

Section 271AAC of the Income Tax Act, 1961, deals with the penalty applicable to income that is brought to tax under specific sections:

• Section 68: Income from undisclosed sources.
• Section 69: Income from undisclosed sources.
• Section 69A: Income from undisclosed sources.
• Section 69B: Income from undisclosed sources.
• Section 69C: Expenditure not recorded in books of account.
• Section 69D: Income from undisclosed sources.

Key Provisions:

• Applicability: This section applies when the Assessing Officer determines that a portion of the taxpayer's income falls under the purview of Sections 68, 69, 69A, 69B, 69C, or 69D. These sections typically cover situations where the source of income is not adequately explained or is deemed to be from undisclosed sources.
• Penalty Amount: The penalty under Section 271AAC is 30% of the tax payable on the income determined under these sections.

10. Penalty under Section 271B of the Income Tax Act.

Section 271B of the Income Tax Act, 1961, imposes a penalty on taxpayers who are required to get their accounts audited under Section 44AB of the Act but fail to do so.

Key Provisions:

• Applicability: This section applies to taxpayers whose business or profession exceeds the specified turnover or gross receipts threshold as per Section 44AB. These taxpayers are legally required to get their accounts audited by a Chartered Accountant.
• Penalty Amount: The penalty under Section 271B is equal to 0.5% of the total sales, turnover, or gross receipts of the business or profession, subject to a maximum of Rs. 1,50,000.

11. Penalty under Section 271BA of the Income Tax Act.

Section 271BA of the Income Tax Act, 1961, deals with the penalty for failure to furnish a report from an accountant as required under Section 92E of the Act.

Key Provisions:

• Applicability: This section applies to taxpayers who are required to obtain a report from an accountant under Section 92E of the Act, typically in cases involving complex international transactions.
• Penalty Amount: The penalty under Section 271BA is a fixed amount of Rs. 100,000.

12. Penalty under Section 271D of the Income Tax Act.

Section 271D of the Income Tax Act, 1961, imposes a penalty for violating the provisions of Section 269SS of the Act.

Key Provisions:

• Applicability: Section 269SS prohibits the receipt of an amount of Rs. 20,000 or more in cash in a single day or in relation to a single transaction or event. This provision aims to curb black money and promote digital transactions.
• Penalty Amount: The penalty under Section 271D is equal to the amount of cash received that exceeds the Rs. 20,000 limit.

13. Penalty under Section 271DA of the Income Tax Act.

Section 271DA of the Income Tax Act, 1961, imposes a penalty for violating the provisions of Section 269ST of the Act.

Key Provisions:

• Applicability: Section 269ST prohibits the receipt of an amount of Rs. 2 lakhs or more in cash in a single day or in relation to a single transaction or event. This provision aims to curb black money and promote digital transactions.
• Penalty Amount: The penalty under Section 271DA is equal to the amount of cash received that exceeds the Rs. 2 lakh limit.

14. Penalty under Section 271DB of the Income Tax Act.

Section 271DB of the Income Tax Act, 1961, imposes a penalty on businesses that fail to comply with the provisions of Section 269SU, which mandates the acceptance of payments for goods and services exceeding a certain threshold primarily through prescribed electronic modes.

Key Provisions:

• Applicability: This section applies to businesses with a turnover exceeding ₹50 crore in the preceding financial year. These businesses are required to provide facilities for accepting payments for goods and services through prescribed electronic modes, such as debit cards, credit cards, UPI, net banking, etc.

Penalty Amount:

• For the first violation: A penalty of ₹5,000 per day for each day of default, up to a maximum of ₹10,000,000.
• For subsequent violations: A penalty of ₹10,000 per day for each day of default, up to a maximum of ₹20,000,000.

15. Penalty under Section 271E of the Income Tax Act.

Section 271E of the Income Tax Act, 1961, imposes a penalty for violating the provisions of Section 269T, which restricts certain cash transactions.

Key Provisions:

• Applicability: Section 271E applies when a person repays a loan, deposit, or specified advance in cash exceeding the limits prescribed under Section 269T.
• Penalty Amount: The most crucial aspect of Section 271E is the severity of the penalty. The penalty levied is equal to the amount of the loan, deposit, or specified advance repaid in cash in violation of Section 269T. This can be a substantial financial burden.

16. Penalty under section 271FA of the Income Tax Act.

As amended by Finance Act, 2020, an Assessee have to furnish statement of Financial Transactions or Reportable Account (earlier the statement was known as Annual Information Return AIR) as required under Section 285BA(1) of the IT Act.

• Non-furnishing of statement will lead to penalty under Section 271FA of the IT Act.
• Penalty of Rs. 500 per day of default shall be levied.
• Note :- As per Section 285BA(5),Tax Authorities issues a notice to the person to file the statement within 30 days from the date of service of such notice. If an Assessee fails to file the statement within the specified period, penalty of Rs. 1,000/- per day shall be levied immediately from the day where such notice for furnishing the statement expires.

17. Penalty under section 270A of the Income Tax Act.

Section 270A of the Income Tax Act, 1961, deals with the penalty for under-reporting or misreporting of income in the Income Tax Return (ITR).

Key Provisions:

• Applicability: This section applies to taxpayers who under-report or misreport their income in their ITR.

Penalty Amount:

• Under-reporting: A penalty of 50% of the tax payable on the under-reported income is levied. Under-reporting refers to situations where a taxpayer declares a lower income than their actual earnings.
• Misreporting: A penalty of 200% of the tax payable on the misreported income is levied. Misreporting includes providing false or misleading information about income sources, claiming unauthorized deductions, or deliberately omitting income.

18. Penalty under Section 272A of the Income Tax Act.

Section 272A of the Income Tax Act, 1961, imposes a penalty on taxpayers who fail to comply with various requirements during income tax proceedings. These requirements include:

• Failing to answer questions truthfully: When questioned by an income tax authority during an assessment or investigation.
• Refusing to sign a statement made during tax proceedings.
• Failing to comply with a summons issued by an income tax authority to attend and give evidence or produce documents.
• Failing to comply with a notice issued under Section 142(1) or Section 143(2) of the Act.
• Failing to comply with a direction issued under Section 142(2A) of the Act.
• Failing to furnish any return, statement, or particulars required under the Act.
• Failing to allow inspection of any register or document as required under the Act.

CONCLUSION

This blog post has highlighted the various penalties associated with non-compliance with the Income Tax Act. To avoid these penalties and potential taxes on undisclosed income, it's crucial for businesses to ensure they are compliant with the Act's provisions.

Navigating the complexities of tax regulations can be challenging. For businesses seeking to ensure smooth and timely compliance, consulting with tax experts is highly recommended. These professionals possess the knowledge and experience to guide businesses through the tax filing process, address any concerns, and represent them effectively in case of inquiries from the Income Tax Department.

If you require assistance with Income Tax compliance or navigating penalty notices, Manthan Experts can be your trusted advisor. Contact them at info@manthanexperts.com.to discuss your specific needs and explore how their expertise can benefit your business.