The Oxford dictionary defines tax as: ‘A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.’
Pay attention to the words ‘contribution to state revenue’, that is the main crux of tax. When the state revenue receives the requisite capital from tax collection, then only can the state spend it to build public infrastructure such as dams, bridges, roads, highways, railway tracks and provide public services such as banking, healthcare, essential goods and services. Other uses of tax money include the upkeep of the armed forces, emergency public spending (storms, tsunamis, riots), and the payment of government employees’ salaries.
For a nation to prosper on social and economic indicators, an efficient tax system and collection is critical. However, tax evasion or fraud by individuals or companies is akin to cancer which threatens to infect and damage a nation’s economic system.
Despite being aware of the necessity of tax, the incidence of tax fraud is always present. While accidental cases do happen, incidental fraud is a criminal offence and causes a decline in a State’s growth.
Tax compliance is a serious affair and for any defaulters or fraudsters, the Income-Tax act provides for adequate repercussions.
- Not Filing Income Tax Returns
If a taxpayer is required to file income tax returns before the due date as required under 139, subsection (1) of Income Tax Act and fails to do so, the assessing officer can impose a penalty of INR 5,000 or more.
- Failure to Pay Tax as Self-Assessment
As per Section 140 A (1) of the Income Tax Act, if a taxpayer fails to pay wholly or partly—self-assessment tax or interest and fee or both, the taxpayer is declared as a defaulter. The assessing officer can as per Section 221(1) declare the taxpayer as a defaulter and impose a fine that does not exceed the tax in arrears. However, if the taxpayer is able to provide sufficient proof for default, the assessing officer can exempt the taxpayer from paying the penalty.
- Failure to Comply with Demand Notice
If a taxpayer receives a demand notice asking for tax payment, the taxpayer has to pay the requisite amount in 30 days to the name and department mentioned in the notice. Failure to do so will result in further penal provisions and the taxpayer will be treated as a defaulter.
- Failure to Get Accounts Audited
If a taxpayer receives a demand notice asking for tax payment, the taxpayer has to pay the requisite amount in 30 days to the name and department mentioned in the notice. Failure to do so will result in further penal provisions and the taxpayer will be treated as a defaulter.Section 92(E) requires the taxpayer to furnish a report from the taxpayer. Failure to do so will incur a penalty of INR 1lakh or more. If any document is not furnished or attached, a penalty of 2% of the transaction’s value (international or domestic) is levied, this is under Section 92(D)3.
- Concealment of Income
Income concealment to not pay tax is a disease that needs eradication before its effect throws the economy into a downward spiral. Under section 271(C) of Income Tax Act, there is a 100% to 300% penalty of the tax evaded if someone is caught concealing tax. The tax evasion penalty varies under certain conditions.
- If the taxpayer admits to the concealed tax, he or she will have to pay 10% of the previous year’s undisclosed income along with interest.
- If the taxpayer does not disclose the undisclosed amount but does so in the return of income furnished in the previous year, 20% penalty of the undisclosed amount along with an interest is levied.
- If the previous year’s amount is undisclosed, the minimum penalty that can be levied is 30% and the maximum is 90%.
- Failure to comply with Income Tax notice
When the Income Tax department issues a tax notice, the recipient taxpayer has to comply. Failure to comply enables the assessing officer to send a notice under Section 142(1) or 143(2) asking the taxpayer to:
- File the return of income.
- Furnish in writing all details of assets and liabilities.
The Income Tax Act exists to ensure tax defaulters and offenders are brought to light. Do not join this list, pay the correct tax on time.