Must Know Income Tax Penalties in India

Understanding the different types of income tax penalties in India 

 

At the end of each financial year, taxpayers are liable to clear their tax dues to avoid tax penalties. Here’s a list of situations that can lead to Income Tax penalties in India:¹

 

• Non-maintenance of account books
• Failure to report income accurately or furnishing wrong details
• Default in paying tax liabilities
• Default in the self-assessment tax
• Failure or delay in filing TDS/TCS return.

 

Tax penalties that every taxpayer must know

 

The list of income tax penalties under the Income Tax Act is quite long, so let’s take a look at some of the common income tax fines that you must be aware of:

 

1. Failure to report income

   As per section 270A of the Income Tax Act, every taxpayer is liable to furnish correct details of their income while filing tax returns  . If a taxpayer defaults in reporting income, furnishes wrong details or conceals income, then they are subjected to two kinds of penalties: For underreported income, there is a penalty of 50% of the tax payable. For misreported income, a penalty of 200% of the tax is payable on the under-reported income. ¹

2. Non-maintenance of account books 

   The Income Tax Act mandates the maintenance of specific books of accounts for tax purposes, as outlined under Section 44AA. However, there is a penalty for not maintaining, keeping, or retaining books of account and documents as required under section 44AA. This penalty of Rs 25,000¹ is levied under section 271A.

    

3. Default in paying tax liabilities

   The Budget 2025  has proposed zero tax liability on income up to ₹12,00,000 for FY 2025-26 (AY 2026-27) under the new tax regime .* Here’s how:

    

   The updated income tax slabs  for the new regime in FY 2025-26 (AY 2026-27) are:²

   Income Earned in a Financial Year	Tax Liabilities
   Up to Rs. 4,00,000	NIL
   Rs. 4,00,001- Rs. 8,00,000	5%
   Rs. 8,00,001- Rs. 12,00,000	10%
   Rs. 12,00,001- Rs. 16,00,000	15%
   Rs. 16,00,001- Rs. 20,00,000	20%
   Rs. 20,00,001- Rs. 24,00,000	25%
   Rs. 24,00,001 and Above	30%

   Under the revised tax structure, individuals earning up to ₹12,00,000 will have zero tax liability due to an increased rebate of ₹60,000. For salaried individuals, income up to ₹12,75,000 will be tax-free, factoring in the ₹75,000 standard deduction ² .

   • Marginal relief on rebate remains applicable ².
   • The rebate does not apply to income taxed at special rates, such as capital gains under Section 112A².

4. Note:

   Know that a default in paying tax liabilities according to the tax slab subjects the taxpayer to penalties as decided by the assessing officer.   Under section 221 (1) of the Income Tax Act ,the tax penalty amount cannot be more than the tax arrears on the taxpayer⁶. 

    

5. Failure or delay to file TDS/TCS return

   
   

   Sections 200(3), 206C(3) and 234E of the Income Tax Act deal with the provisions related to TDS and TCS returns. The default in filing TDS or TCS returns subjects the taxpayer to a penalty of Rs. 200 per day until the return  is made. Know that the penalty cannot exceed the TDS or TCS amount. ¹

6. Failure to comply with the Income-tax notice

   
   

   Before we proceed with the penalties, let’s first understand the process-

7. Section 272A(1) – Penalty for Non-Compliance: Rs 10,000 for every default¹

   A person may face penalties under this section if they fail or refuse to:
   • Respond to questions from the Income Tax authority
   • Sign statements as required by the IT authority
   • Provide evidence or produce books when summoned under Section 131(1)
   • Comply with notices issued under Sections 142(1), 143(2), or 142(2A).

 

Paying income tax liabilities: What you need to know 

             

As a taxpayer, you must know that the due date for filing income tax returns is usually 31st July for non-audited tax-payers without late fees, unless the government has announced an exception or extension and this FY 2024-25 (AY2025-26) is 31^st July 2025⁷. In case of default in paying tax, you are subjected to the payment of ITR fine and the due taxes.

 

Income tax penalties can be paid either through online or offline methods:

 

1. Online method:

   To pay income tax penalties online, you can visit the official website of the income tax e-filing portal. On the website, you will find the ‘e-pay tax’ menu. Select the menu “Self-Assessment Tax(300) as payment in Challan 280. Fill in the form with relevant details and submit it along with the penalty amount either through netbanking or debit card.³

2. Offline method:

   To pay income tax penalties, you can visit the nearest authorized bank and fill out the form ITNS-280⁸ with relevant details. Submit the form along with the penalty amount either through RTGS or NEFT, and make sure to collect a receipt.⁴

 

Exploring legal provisions and reliefs 

 

The Income Tax Act of 1961 ensures that every taxpayer is subjected to equity provisions, and defaulters are subjected to penalties. However, the government of India steps in to provide relief to the taxpayers who might have missed the deadline innocently. For instance, the last date to file income tax returns was extended to 31st December 2024, thus providing 6 months’ extension period to taxpayers. Remember that even if the government provides an extension, a delay in filing income tax returns can subject you to penalties ranging from Rs. 1,000 to Rs. 5,000. ⁵

 

Conclusion 

 

The Income Tax Act of India is well-structured to ensure a smooth assessment and collection system. Even in case of a default on the part of any taxpayer, there are specific provisions to impose penalties and collect the due tax amount. As a taxpayer, you must file income tax returns on time to avoid facing tax penalties.

 

Sources

1.https://cleartax.in/s/penalty-income-tax-act

2.https://cleartax.in/s/income-tax-slabs

3.https://groww.in/p/tax/section-234f-of-income-tax-act

4.https://www.incometax.gov.in/iec/foportal/help/make-payment-offline-faq#:~:text=1.,under%20the%20Generated%20Challans%20tab.

5.https://m.economictimes.com/wealth/tax/navigating-itr-penalties-what-you-need-to-know-for-fy-2023-24/amp_articleshow/111759597.cms

6.https://icmai.in/upload/Taxation/PPTs/Tapas_Mazumdar_2.pdf (page 3)

7.https://cleartax.in/s/due-date-tax-filing

8.https://www.taxbuddy.com/blog/income-tax-penalties#:~:text=Failing%20to%20file%20an%20ITR,form%20and%20the%20required%20payment.