Taxpayers must submit their income tax returns before the deadline while they must also follow all tax regulations because both requirements protect them from facing penalties. The Income Tax Act of 1961 regulates all direct tax assessments in India while it establishes various penalties for different types of tax violations.

The Income Tax Department (ITD) has the authority to impose penalties for:

Late filing of returns
Non-payment of taxes
Under-reporting or misreporting of income
Failure to deduct or collect TDS/TCS
Non-maintenance of books of accounts

The total amount of penalties assessed against a taxpayer includes their actual tax obligations and all applicable interest and other fees.

Open Demat account and Unlock smarter investing today!

Key Income Tax Penalty Provisions (AY 2025–26)

The Income Tax Act contains several important penalty sections which operate as follows:

1. Penalty for Late Filing of Income Tax Return – Section 234F

If you fail to file your income tax return within the due date:

₹5,000 if filed after due date but before 31st December
₹10,000 if filed after 31st December
₹1,000 if total income is below ₹5 lakh

This penalty is applied when taxpayers submit their returns.

2. Penalty for Non-Payment of Self-Assessment Tax – Section 140A(3)

If you fail to pay:

Tax
Interest
Penalty

The Assessing Officer (AO) may impose a penalty up to the entire unpaid tax liability.

3. Default in Payment of Tax – Section 221(1)

If you are deemed to be in default for making tax payments:

The AO may impose a penalty up to the amount of unpaid tax.

4. Under-Reporting or Misreporting of Income – Section 270A

Tax obligations from income which remains under-reported become subject to:

50% of the total tax payable on under-reported income

In case of misreporting:

200% of the total tax payable

Misreporting includes:

Failure to report income
Claiming false expenses
Recording false entries

5. Penalty for Failure to Deduct TDS – Section 271C

If tax is not deducted at source:

Penalty equals the amount of TDS not deducted.

6. Penalty for Failure to Collect TCS – Section 271CA

If tax is not collected at source:

Penalty equals the amount of TCS not collected.

7. Late Filing of TDS/TCS Returns – Section 234E & 271H

₹200 per day for delay under Section 234E (subject to TDS/TCS amount)
Additional penalty may apply under Section 271H

8. Non-Maintenance of Books of Accounts – Section 271A

Any person who operates a business or professional practice needs to maintain proper accounting records according to Section 44AA requirements.

Penalty: ₹25,000

9. Failure to Get Accounts Audited – Section 271B

The business needs to conduct an audit according to Section 44AB requirements.

Penalty: 0.5% of total sales/turnover
Maximum Penalty: ₹1,50,000

10. Cash Transaction Above ₹2,00,000 – Section 271DA

If a business receives cash exceeding ₹2,00,000 from a single individual in a single day:

Penalty equals the total cash amount received.

11. Penalty for Incorrect PAN – Section 272B

If a person fails to provide their PAN number or provides incorrect PAN details:

Penalty: ₹10,000

12. Search & Undisclosed Income – Sections 158BFA & 271AAB

If undisclosed income is detected during a search operation:

Section 158BFA: 100% to 300% of the total tax amount
Section 271AAB: 30% to 60% of the undisclosed income

General Principles About Income Tax Penalties

Penalty is separate from tax liability and interest.
Penalties can apply even for first-time offences.
Relief may be granted if reasonable cause is demonstrated.
Taxpayers have the right to appeal against penalty orders.

How to Avoid Income Tax Penalties

File your tax returns before the due date.
Pay advance tax and self-assessment tax on time.
Maintain accurate financial records.
Reconcile TDS with Form 26AS and AIS.
Avoid cash transactions beyond prescribed limits.
Report income correctly and transparently.

Conclusion

Income tax penalties under the Income Tax Act of 1961 can create significant financial strain. However, most penalties are avoidable through timely compliance, accurate reporting, and proper documentation.

Understanding penalty provisions helps taxpayers remain compliant while avoiding unnecessary financial and legal consequences.

Frequently Asked Questions (FAQs)

What is the penalty for late filing of income tax return?

The penalty is ₹5,000 or ₹10,000 depending on the delay period. If total income is below ₹5 lakh, the penalty is ₹1,000.

Can income tax penalty be waived?

Yes. In certain cases, if reasonable cause is proven, relief may be granted.

Is penalty different from interest?

Yes. Interest compensates for delay in payment, whereas penalty is a punitive charge for non-compliance.

What is the penalty for under-reporting income?

50% of tax payable on under-reported income; 200% in case of misreporting.

Is there a penalty for not quoting PAN?

Yes. ₹10,000 under Section 272B.

What happens if I do not deduct TDS?

Penalty equal to the amount of TDS not deducted may apply.

Can I appeal against the income tax penalty?

Yes. You can file an appeal before the Commissioner (Appeals).

/content/mofsl-website-adobe/fragments/pf-disclaimer