These days everyone is busy filing Income Tax Returns (ITR). To save tax money, many times taxpayers make the mistake of hiding income or giving wrong information. But do you know that even a small mistake of yours can put you in big trouble? If this mistake of yours is caught by the Income Tax Department, then a huge fine can be imposed on you.
Hiding income is considered a serious crime
If you show less income in your Income Tax Return (ITR) or do not disclose the income from any source, then it can cost you very dearly. Under the Income Tax Act, concealing income (Concealment of Income) or giving wrong information (Misreporting of Income) is considered a serious crime. The Income Tax Department now has such smart systems that keep an eye on your every financial activity.
How much is the penalty for showing less income?
Many times people inadvertently declare their income less. According to Section 270A of the Income Tax Act, if you have under-reported your income, then a penalty of up to 50% of the tax due on the income on which you have not paid tax can be imposed. For example, if you hid an income of ₹2 lakh and the tax due on it was ₹60,000, then you may have to pay a penalty of ₹30,000.
Did you knowingly give wrong information? Then a hefty penalty of 200% will be imposed!
If it is proved that you have knowingly given wrong information, such as submitting fake bills, showing false expenses or using fake documents, then the penalty is even heavier. Under Section 270A, in such a situation, a penalty of up to 200% of the tax due on the hidden income can be imposed. That is, if you saved tax of ₹60,000 by giving wrong information, then you can be fined ₹1,20,000.
Tax evasion can lead to 7 years in jail
This matter is not limited to just fines. If tax evasion is done intentionally and the amount of tax evaded is more than ₹ 25 lakh, then the Income Tax Department can prosecute you. Under section 276C, there is a provision of imprisonment from 3 months to 7 years on conviction. This is one of the harshest punishments, so do not be careless about tax.
How is tax evasion caught?
Now the Income Tax Department is not dependent only on the information given by you. The department matches all the data like your AIS (Annual Information Statement), Form 26AS, GST returns, bank transactions, credit card expenses, and purchase and sale of property. The AI-based system analyzes all these data and immediately catches any kind of mismatch and your case is selected for investigation.
Can the penalty be avoided by correcting the mistake?
Yes, it is possible in some cases. If you realise your mistake and file a revised return (Section 139(5)) or an updated return (Section 139(8A)) and pay the full tax and interest before the Income Tax Department sends you a notice, you can avoid the penalty. Also, if you cooperate fully with the investigation and are able to prove that the mistake was inadvertent, you can get relief from the penalty.
Does every notice mean a penalty?
No, not every notice means a penalty. Sometimes the department sends you a notice seeking clarification on some information or asking about a general discrepancy. It is important to respond to the notice in a timely manner.
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