The Income Tax Act of 1961 is the framework for the direct taxation system in India. As a taxpayer, you must ensure that you comply with all of the provisions under this act. Failing to comply with the income tax rules can lead to penalties, which are often quite steep.
The Income Tax Department (ITD) has the authority to impose penalties for non-compliance, underreporting of income, misreporting of income and other defaults. In this comprehensive guide, we are going to explore the various penalty provisions listed in the Income Tax Act of 1961 so that you can avoid unnecessary financial liabilities and legal trouble.
Penalty Provisions Under the Income Tax Act of 1961
The Income Tax Act has as many as 40 sections, with each one dealing with different non-compliance defaults. The penalty levied by these sections must be paid by the taxpayer over and above the tax liability they owe to the ITD. Furthermore, the penalty is levied at the time of the first offence and not from the financial year in which it was committed.
Now, let us look at some of the key penalty provisions under the act for the assessment year 2025 – 2026.
| Section | Nature of Non-Compliance | Minimum Penalty | Maximum Penalty |
| 140A(3) | Failure to pay fully or partially the income tax liability, interest and penalty or both | Any amount that the Assessing Officer (AO) imposes | The entire unpaid tax liability |
| 158BFA(2) | Identification of undisclosed income during a search conducted as per section 132 or section 132(A) | 100% of the tax liability on the undisclosed income | 300% of the tax liability on the undisclosed income |
| 221(1) | Default or deemed to be in default of making tax payments | Any amount that the Assessing Officer (AO) imposes | The entire unpaid tax liability |
| 234E | Failure to file TDS and TCS returns within the prescribed due date as per sections 200(3) and 206C(3) | ₹200 for every day until the return is filed | The amount of TDS or TCS collected |
| 234F | Failure to file income tax returns within the specified due dates as per section 139(1) | ₹5,000 if the return is filed after 31st July but before 31st December
If the total income is less than ₹5 lakh, the penalty is ₹1,000. |
₹10,000 if the return is filed after 31st December |
| 234G | Failure to produce a statement or certificate of donation for scientific purposes (section 35) or other charitable purposes (section 80G) | ₹200 for every day until the statement or certificate is filed | – |
| 270A | Under-reporting of income in income tax returns
Under-reporting of income in income tax returns due to misreporting of income |
50% of the income tax payable on the under-reported income
In the case of misreporting of income, 200% of the tax payable on the under-reported income |
– |
| 271A | Non-maintenance of books of accounts and other documents by individuals carrying on business or profession specified under section 44AA | ₹25,000 | – |
| 271AA(1) | Non-maintenance of record, document or information as per sections 92D(1) and 92D(2) on international transactions or specified domestic transactions
Non-reporting of international or specified domestic transactions Furnishing incorrect documents or information on international or specified domestic transactions |
2% of the value of the international or specified domestic transactions | – |
| 271AA(2) | Non-maintenance of record, document or information as per section 92D(4) on international transactions or specified domestic transactions | ₹5,00,000 | – |
| 271AAB(1A) | Identification of undisclosed income during a search conducted as per section 132 after December 12, 2016 | 30% of the undisclosed income if the taxpayer agrees with the undisclosed income and pays the tax, along with interest on it | 60% of the undisclosed income |
| 271AAC | Non-reporting and non-payment of tax on the following incomes:
|
10% of the tax payable on the income under section 115BBE | – |
| 271AAD | Presence of fake invoices and false entries or omission of entries in the books of accounts | The value of false and fake invoices or omitted entries, as the case may be | – |
| 271B | Failure to get accounts audited or submit the audit report as per section 44AB | The lesser of the following:
|
– |
| 271C | Non-deduction of tax at source (TDS) | The tax that was not deducted | – |
| 271CA | Non-collection of tax at source (TCS) | The tax that was not collected | – |
| 271DA | Receipt of cash of more than ₹2,00,000 from one person in one day (section 269ST) | The value of cash so received | – |
| 271DB | Failure to provide an electronic payment method by businesses specified under section 269SU | ₹5,000 for every day until such payment facility is provided | – |
| 271E | Failure to pay loans, deposits and specific advances in a mode other than by account payee cheques or by demand draft | Amount of loan, deposit or specific advance paid | – |
| 271FAA | Submitting inaccurate financial transaction statements or reportable account statements | ₹50,000 | – |
| 271G | Non-reporting of information on international or specified domestic transactions as per section 92D(3) | 2% of the value of the international or specified domestic transaction | |
| 271H | Default in filing TDS or TCS statements within the specified due date
Filing incorrect information in TDS or TCS statements |
₹10,000 | ₹1,00,000 |
| 271I | Default in furnishing information related to a payment made to a non-resident person | ₹1,00,000 | – |
| 271J | Inaccurate information in certificates or reports produced by an accountant, registered valuer or merchant banker | ₹10,000 for every inaccurate report or certificate | – |
| 271K | Default in furnishing statements as per section 35(1) and 80G(5) | ₹10,000 | ₹1,00,000 |
| 272A(1) | Failure to:
|
₹10,000 for each failure | – |
| 272AA | Failure to provide information to the ITD when a search is conducted as per section 133B | – | ₹1,000 |
| 272B | Failure to quote PAN or quoting incorrect PAN in documents prescribed as per section 139(5)
Failure to furnish PAN or furnishing incorrect PAN to the TDS deductor prescribed as per section 139(5) |
₹10,000 | – |
| 272BB | Failure to quote the TDS or TCS number or quoting an incorrect TDS or TCS number | ₹10,000 | – |
Conclusion
Penalties under the Income Tax Act of 1961 can be severe and cause significant financial strain. Fortunately, they are completely avoidable. By staying informed of the penalties for various lapses and offences, you can ensure that you protect yourself from them. Now that you know the penalty provisions, make sure to stay proactive in maintaining proper records, filing timely returns and being transparent in your financial declarations when you file your income tax returns.
FAQs
What is the penalty for late filing of income tax returns?
If your total income is less than ₹5 lakh, the penalty for late filing of income tax returns is ₹1,000. On the other hand, if your total income is more than ₹5 lakh, the penalty is ₹5,000. However, this penalty is only applicable if you file your returns after 31st July and before 31st December. If you file your return after 31st December, the penalty for late filing increases to ₹10,000.
Can penalties be waived or reduced?
Yes. The Assessing Officer (AO) and the Commissioner of Income Tax (CIT) have the power to waive or reduce the penalty for non-compliance with the provisions of the Income Tax Act of 1961.
What should I do if I receive a penalty notice?
If you have not complied with the provisions of the Income Tax Act of 1961 as mentioned in the penalty notice, it is advisable to pay the penalty immediately. On the other hand, if you feel that you have complied with all the provisions listed in the notice, you may file a response to the penalty notice online with the necessary documents supporting your claim.
Can you appeal against an imposed penalty?
Yes. You can file an appeal against a penalty imposed by the Assessing Officer (AO) by filing Form 35 online. The appeal will be taken up for scrutiny by the Commissioner of Income Tax (Appeals) [CIT(A)].
