Tax Evasion in India and Penalties Imposed

Tax evasion is defined as the non-payment or underpayment of tax by the taxpayers and is considered illegal. Taxes are the primary source of income for the government and income tax evasion ramification slows down economic growth.

The Income-tax act of 1961 (chapter XXII) levies huge tax evasion penalties on individuals who commit this fraud. The penalty paid is on top of the evaded tax and in some cases, one might also go to jail for committing this crime.

Here is the repercussion of breaking the income tax rule:

Not filling the Income-tax return

The Income-tax act Section 139, subsection (1) states that every taxpayer must file for tax returns at the financial year-end. Failing to do so will bring a penalty of INR 5000 or more as decided by the assessing officer.

Incorrect Pan details or not providing the PAN details at all

When an employer employs you, you are supposed to provide your PAN details. If that is not done then a 20% TDS (tax deducted at source) would be deducted, which is 10% above the usual TDS.

You will have to pay a penalty of INR 10,000 if the PAN data you provided is incorrect.

Concealment of Income

If someone shows less income than what they make or hides different sources of income then Income-tax Act section 271 (C) states that a tax evasion penalty would be levied which has a range from 50% to 200% of the amount of tax evaded. The range depends on the following factors:

Defaulter pays 50% on the concealed or the under-reported income of previous year if the reason for under-reporting is not done with an intention to misreport. It is termed as a bonafide mistake which happens due to lack of attention by the assessee.

Defaulter pays a 200% on the concealed or the under-reported income of previous year if the reason for under-reporting is with the intent of misreporting. It is termed as a mala-fide mistake.

Not complying with TDS regulations

TDS regulations mandate that anyone who deducts tax at the source or collects tax at the source needs to have a TAN (tax collection account number). If you are not able to obtain this number then you need to pay a penalty of INR 10,000.

If TDS was not filed on or before the due date then the taxpayer has to pay penalty for each day that passes after the due date, till the time payment is done. This amount could start from INR 10,000 and go up to INR 1, 00,000 and is paid to the government.

Failure to comply with a demand notice

If a taxpayer receives a demand notice for tax payment then he/she needs to pay that amount within 30 days of receiving then notice. This would happen if in the process of assessing your ITR (income tax returns) the assessee finds out that you need to pay more tax than what has been paid. If this payment is not done then the taxpayer would be considered a defaulter and further penalty will be levied on that person. After paying the tax, the taxpayer also has to inform the person whose name is mentioned in the notice, about the payment.

Tax not paid as per self-assessment

Someone is a defaulter as per section 140A (1) if they are not able to pay wholly or partly the tax and interest based on self-assessment. The assessing officer can levy a penalty but this penalty cannot exceed the arrear amount. An arrear is the amount of tax owed by the taxpayer to the income tax department. This penalty is based totally on the discretion of the assessor. If the assessee is able to provide justification for the delay in paying tax then he/she might be exempted from this penalty.

With the advent of technology, it has become important to abide by the rules and regulations imposed by the IT department as they can track them more efficiently now. The penalties have also increased in order to increase tax revenue.