Tax evasion is the act of avoiding paying taxes through deceitful means. This can include providing false information to tax authorities, under-reporting income or profits, overstating deductions, bribing tax officials, and concealing assets. This not only harms the country's economic and social development, but also contributes to the creation of black money.
Tax evasion is a serious violation of the law and can result in substantial penalties in addition to unpaid taxes according to the Income tax Act, 1961. It is noteworthy that some penalties are mandatory while others are at the discretion of tax officials. The Income Tax Act of 1961 includes provisions in Chapter XXII for the prosecution of offenses such as not filing a return on time, providing false information, attempting to evade taxes, and manipulating numbers. The burden of proof lies on the accused.
Examples of Tax Evasion and Penalties
Concealing income to evade taxes: When an individual or entity tries to hide their true earnings or income to avoid taxes, the penalty can range from 100% to 300% of the tax leviable in respect of undisclosed income under 158BFA(2) of the Income-tax Act, 1961.
Failing to pay self-assessment tax: The Assessing Officer has the authority to impose a penalty not exceeding the unpaid tax amount under section 140A(3) of the Act, if an individual fails to make payment of self-assessment tax.
Default in furnishing of tax return: Section 234F of the Act provides that If a tax return is filed after the due date prescribed under section 139(1) of the Income-tax Act, 1961, a penalty of Rs 5,000 may be imposed. However if the total income of the person does not exceed Rs. 5 lakhs then Rs. 1,000 shall be the late filing fees.
Under-reporting and misreporting of income: Section 270A(1) of the Act provides that 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. Under-reporting of income denotes a situation, where the income assessed is higher than the income reported on a processed return. Misreporting of income may involve actions such as withholding or falsifying information, failing to record investments in the books of account, or claiming expenses without proper documentation.
Failure to maintain books of accounts and other documents: If a taxpayer does not keep records as required by section 44AA, he will be subject to a penalty of Rs 25,000 under section 271A. If the taxpayer has engaged in international or specified domestic transactions, the penalty will be 2% of the value of those transactions.
Failure to get accounts audited: Section 44AB requires certain taxpayers to have their accounts audited. If they fail to do so, they will face a penalty of either 0.5% of their total sales, turnover or gross receipts, or Rs 1,50,000, whichever is higher. If a taxpayer does not provide an accountant's report as required by Section 92E, he will be subject to a penalty of Rs 1,00,000 or more.
Default in making payment of Tax: If a taxpayer is considered to be in default for not paying the amount specified in a notice issued under section 156 within the required time, the Assessing Officer may impose a penalty that does not exceed the amount of unpaid tax, as outlined in section 221(1).
Non-compliance with TDS regulations: Individuals or companies who require to deduct or collect taxes at source must obtain a tax deduction and collection account number (TAN). If they fail to do so, a penalty of Rs 10,000 will be imposed.
If a company or organization does not file tax deducted at source (TDS) or tax collected at source (TCS) return within the required timeframe, they will incur a penalty of Rs 200 per day for the delay. This penalty cannot exceed the amount of TDS. Additionally, the tax authorities may impose penalties for providing incorrect information or failing to file TDS or TCS returns before the deadline, which can range from Rs 10,000 to Rs 1,00,000.
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