Penalty for under-reporting or misreporting of income

The Income Tax (IT) department can impose penalty on a taxpayer who resorts to under-reporting or misreporting of income under Section 270A of the IT Act. This section was introduced in the Union budget of 2016. The IT department has recently issued advice to the taxpayers to report their incomes accurately and has made some changes in the ITR Form 1 seeking detailed particulars of taxpayers’ incomes.

Section 270A defines that a person shall be considered to have under-reported his income, if:

(a)  the income assessed is greater than the income determined in the return processed;

(b)  the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished;

(c)  the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

Sub-section 8 of Section 270A defines misreporting of income as:

(a)  misrepresentation or suppression of facts;

(b)  failure to record investments in the books of account;

(c)  claim of expenditure not substantiated by any evidence;

(d)  recording of any false entry in the books of account;

(e)  failure to record any receipt in books of account having a bearing on total income; and

(f)  failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction.

The penalty for deliberate under-reporting or misreporting of incomefor the purpose of tax evasion would be 200% of the tax payable on the under-reported income, while the penalty for under-reporting of income due to mitigating circumstances would be 50% of the tax payable on under-reported income.