Tax Evasion and Penalties in India

Tax Evasion and Penalties in India

Rooting for taxes is never an easy thing because most people question that concept of giving away part of their earning to a government but the fact is that taxes are an important source of income for the government. This is the money that is invested in various development projects that are meant to improve the company's situation. But the country has been facing a massive problem with tax evasion. People who should be paying taxes have found ways not to pay them and, as a result, it may be said that the income of the country has been suffering. So let's take a look at what are the ways in which people are avoiding taxes and what are the penalties for it.

Common Methods of Tax Evasion:

There are two aspects of not paying taxes when they are due. The first is tax avoidance and the other tax evasion. The difference between the two is that tax avoidance is basically finding a loophole that exempts you from paying taxes and is not strictly illegal, while evasion is not paying the taxes when they are actually due, which is absolutely illegal. These are some of the ways in which people may avoid/evade taxes.

  • Failing to pay the due:

    This is the simplest way in which someone may evade taxes. They simply won't pay it to the government, not even when the dues are called for. A person engaged in this sort of tax evasion won't, willingly or unwillingly, pay the tax before or after the due date.

  • Smuggling:

    When certain goods move from one location to another, across international or state borders, a tax or charge may be payable in order to move the goods. However, some individuals may move these goods in surreptitious ways in order to avoid paying those taxes that evading the tax altogether.

  • Submitting false tax returns:

    In some cases, when an individual files taxes, they may submit false or incorrect information in order to either lessen the tax that they are supposed to pay or not pay it at all. This is also tax evasion since the complete information is not provided and they may actually be paying less than what they should.

  • Inaccurate financial statements:

    The taxes that are payable by an individual or an organisation may be decided on the financial dealing that have taken place during the assessment year. If false financial documents or accounts books are submitted, ones that show incomes less than what was actually earned, the tax may come down.

  • Using fake documents to claim exemption:

    The government may have provided certain exemptions and privileges to certain strata or members of society in order to ensure they have a bit more financial freedom to progress. In some cases, members who actually don't qualify for such privileges will get documents created to support their claim of being a part of that group thus claiming exemptions where they are not suited.

  • Not reporting income:

    It could be said that this is one of the most common methods of tax evasion. In this case, individual just won't report any income that they receive during a financial year. Not having reported any income, they don't pay any tax thus successfully evading tax all together. The simplest example of this would be a landlord who has kept tenants but has not informed the authorities that he has rented the house and is actually receiving an income from it.

  • Bribery:

    There may be a situation where there a certain amount due in taxes which the individual may not be willing to pay. In such a case he or she may actually offer a bribe to officials to not make them pay the tax and to make it 'disappear'.

  • Storing wealth outside the country:

    We have all heard tales of Swiss bank accounts. Offshore accounts are accounts maintained outside the country and information about the dealing in these accounts is not disclosed to the income tax department thereby evading any and all taxes due on that wealth.

Penalties for Tax Evasion:
There are various penalties that the income tax department can impose on anyone who is found guilty of evading or avoiding taxes. These penalties can also apply to companies that either fail to report and pay their own taxes or fail to deduct taxes at source when they are supposed to.
Some of these may be:

  • As per Section 140 (1), if the tax payer fails to pay either wholly or partly self – assessment tax or interest then he/she shall be treated as a defaulter. A penalty under Section 221(1) will be imposed by the assessing officer. However, if the tax payer is able to justify the delay in paying taxes then the assessing officer can even exempt the assesse from paying penalty.
  • The penalty for concealment will be 100% to 300% of the tax as per Section 271. If the tax authorities feel the need too raid a premise to discover the undisclosed income, in such case penalty levied will under Section 271 AAB.
  • If a person fails to file tax statements within the time allotted, then a penalty of Rs. 200 per day may be charged for every day that the statements are not filed.
  • In case a person or a company fails to maintain their accounts properly as directed by section 44AA, a penalty of Rs. 25,000 may be levied.
  • If a company fails to get itself audited or fails to provide a report of said audit, then a penalty of Rs. 1.5 lakhs or 0.5% of the sales turnover, whichever is less, may be charged.
  • If a report from an accountant is not provided as directed, then a fine of Rs. 1 lakh may be levied.
  • In case an organisation fails to deduct tax where it is supposed to while making payments then the penalty could be payment of the tax due.


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