Income Tax

Penalties Applicable for belated Full Disclosure of Transactions and Payment of Tax


The Income Tax Department of India functions in accordance with the provisions of the Income Tax Act, 1961. The Income Tax Act is amended in the parliament every year by the Finance Bills placed. It has been debated that if a tax payer comes clean after scrutiny and agrees to cough up the remaining tax on the undisclosed income. Merely offering to pay up does not lead to condoning the penalty. This also accrues severity when there has been a fictitious claim on which tax exemption has been claimed or tax has been underpaid. The logical conclusions to the penalty not being condoned can be several and varied.

The first reason could be concealment of income. The individual has been found to have concealed his/her income and has furnished incorrect returns and, therefore, the income tax department can be justified in leveling a penalty. The amount of penalty can always vary depending on the extent of evasion that has been proven.

The second reason is that the government requires all citizens to maintain record of all kinds of transactions that earn income for the individual for the purpose of taxation. Proper documents in acceptable condition require to be maintained as proof of claims and exemptions that are being claimed. Failure to do so or produce the required proof would invite penal provisions of the Act as sufficient record has not been produced in support of claims being made for nonpayment of dues.

If any income information has not been disclosed then the provisions for submitting annual information return has not been complied. In the case where books are required to be audited and they have been done so then it clearly indicates a willful non disclosure of information that was already known. Normal penalty provisions could be up to .5 per cent of gross receipts in case of professionals or in terms of turnover or sales in case of business establishment.

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In consideration of the fact that whether the penalty should be levied or not if a correction has been made by revising the return within the specified time limit, the individual could get immunity from penalty only if the tax that was due has been paid with the late payment fee, as and if applicable and that full disclosure of the income or tax payable from transaction has been made and that the earlier return was deficit on account of a honest mistake and not a willful attempt to discreet non-disclosure.

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