Tax evasion is defined as the illegal non-payment or under payment of tax by an individual.
The Oxford dictionary defines tax as: ‘A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.’
There are various penalties that the income tax department can impose on anyone who is found guilty of evading or avoiding taxes. These penalties can also apply to companies that either fail to report and pay their own taxes or fail to deduct taxes at source when they are supposed to.
Following are the different Tax Evasion Punsihments/Penalties:
Not Filing Income Tax Returns If a taxpayer is required to file income tax returns before the due date as required under 139, subsection (1) of Income Tax Act and fails to do so, the assessing officer can impose a penalty of INR 5,000 or more.
Failure to Pay Tax as Self-Assessment As per Section 140 A (1) of the Income Tax Act, if a taxpayer fails to pay wholly or partly—self-assessment tax or interest and fee or both, the taxpayer is declared as a defaulter. The assessing officer can as per Section 221(1) declare the taxpayer as a defaulter and impose a fine that does not exceed the tax in arrears. However, if the taxpayer is able to provide sufficient proof for default, the assessing officer can exempt the taxpayer from paying the penalty.
Failure to Comply with Demand Notice If a taxpayer receives a demand notice asking for tax payment, the taxpayer has to pay the requisite amount in 30 days to the name and department mentioned in the notice. Failure to do so will result in further penal provisions and the taxpayer will be treated as a defaulter.
Failure to Get Accounts AuditedIf a taxpayer receives a demand notice asking for tax payment, the taxpayer has to pay the requisite amount in 30 days to the name and department mentioned in the notice. Failure to do so will result in further penal provisions and the taxpayer will be treated as a defaulter.Section 92(E) requires the taxpayer to furnish a report from the taxpayer. Failure to do so will incur a penalty of INR 1lakh or more. If any document is not furnished or attached, a penalty of 2% of the transaction’s value (international or domestic) is levied, this is under Section 92(D)3.
Concealment of Income Income concealment to not pay tax is a disease that needs eradication before its effect throws the economy into a downward spiral. Under section 271(C) of Income Tax Act, there is a 100% to 300% penalty of the tax evaded if someone is caught concealing tax. The tax evasion penalty varies under certain conditions.
If the taxpayer admits to the concealed tax, he or she will have to pay 10% of the previous year’s undisclosed income along with interest.
If the taxpayer does not disclose the undisclosed amount but does so in the return of income furnished in the previous year, 20% penalty of the undisclosed amount along with an interest is levied.
If the previous year’s amount is undisclosed, the minimum penalty that can be levied is 30% and the maximum is 90%.
If an individual fails to file tax statements within the time allotted then a penalty of Rs. 200 per day may be charged for every day that the statements are not filed.
In case someone has concealed details of their income or any fringe benefits that are taxable, the penalty can range from 100% to 300% of the tax amount due.
In case a person or a company fails to maintain their accounts properly as directed by section 44AA, a penalty of Rs. 25,000 may be levied.
If a report from an accountant is not provided as directed then a fine of Rs. 1 lakh may be levied.
Failure to comply with Income Tax notice
When the Income Tax department issues a tax notice, the recipient taxpayer has to comply. Failure to comply enables the assessing officer to send a notice under Section 142(1) or 143(2) asking the taxpayer to:
File the return of income.
Furnish in writing all details of assets and liabilities.
Point to Note:
In case of large cash deposits of more than Rs10 lakh that are not explained by the income declared in the income tax returns, it will be treated as tax evasion and the tax amount plus a penalty of 200% of the tax payable would be levied.