Tax Evasion- Methods, Penalties Imposed

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Tax Evasion- Methods, Penalties Imposed

Tax evasion is an unlawful activity in which an individual or organization try to avoid paying the tax liability. It involves hiding income or providing false income, without confirmation of inflating deductions, not reporting cash transactions, and so on. Tax Evasion is a serious offense that falls under criminal accusations and considerable penalties.

The Income-tax act of 1961 imposes enormous tax evasion penalties on people avoiding to pay the tax. In some cases, a penalty is imposed while in other cases, one might also go to jail for committing this crime. Taxes are the primary source of income for the government and income tax evasion ramification slows down economic growth.

Methods of Tax Evasion

The punishments and penalties applicable to individuals liable for indulging in tax evasion relies upon the sort of offense. Given below are the key methods that are considered as tax evasion as indicated by the Income Tax Act, 1961:

Not Filing Tax Returns

One of the most well-known forms of tax evasion is not filing income tax returns as stated by Section 139 of the Income Tax Act. As a rule, individuals attempting to evade taxes is investigated to check whether the non-filing or partial filing of income tax forms is accidental or deliberate. In the event that they are considered to committing fraud, they are subject to harsh punishment. Else, they need to file taxes correctly after paying the necessary penalties.

Not Providing or Misquoting PAN

On the off chance that an employee doesn’t cite PAN to the employer, the employer is required to deduct 20% TDS from the former’s salary else, 10% TDS is deducted. Nonetheless, quoting the wrong PAN or not giving PAN to appropriate authorities can draw in heavy penalties. This is on the grounds that it is marked as a type of identity theft.

Concealing Income to Evade Taxes

Some taxpayers attempt to hide their real income so their tax liability is determined to be lower than the real. This is another regular type of tax evasion. They can do so by associating their assets with an individual other than themselves or with an alternate name/PAN. Another normal technique for hiding actual income is accepting cash to avoid TDS Deduction or under-reporting transactions made by the business/individual.

Not Complying with Income Tax Notice

Tax Authorities such as the Assessing Officers review income tax returns and may give notice on the off chance that they notice an error in the income, tax, and or any other details provided. For this situation, not consenting to a notice issued by the Income Tax department is viewed as a type of tax evasion.

Not Maintaining Compliant Books/Accounts

In situations where the books/accounts maintained by the tax authorities are not consistent with Section 44AA of the Income Tax Act, 1961, the assessing official may impose a penalty of up to Rs. 25,000.

Using Fake Documents To Claim Exemption

The government has provided certain exemptions and privileges to certain strata or members of society in order to provide them a bit more financial freedom. In some cases, individuals who really don’t qualify for such privileges will get documents made to support their claim of being a piece of that group thus claiming exemptions where they are not suited.

Penalties Imposed on Tax Evasion

Not Filing Tax Returns

The Income-tax act Section 139, states that each citizen must file for tax returns at the end of the financial year. Neglecting to do so will bring a penalty of INR 5000 or more as decided by the assessing officer.


Not Providing or Misquoting PAN

Misquoting PAN is treated as a case of identity theft and can attract a penalty of up to Rs. 10,000. When an employer employs you, you are supposed to provide your PAN details. If that is not done then a 20% TDS (tax deducted at source) would be deducted, which is 10% above the usual TDS.


Concealing Income to Evade Taxes

In the event that somebody shows less income than what they make or conceals various types of income then Income-tax Act section 271 (C) expresses that a tax evasion penalty would be imposed which has a range from 50% to 200% of the measure of tax evaded. The range relies upon the following factors:

  • Defaulter pays 50% on the disguised or the under-reported income of the previous year if the purpose behind under-detailing is not done with an intention to misreport. It is named as a bonafide mistake which occurs because of the lack of attention by the assessee.
  • Defaulter pays 200% on the concealed or the under-reported income of the previous year if the reason for under-reporting is with the intent of misreporting. It is termed as a mala-fide mistake.

Failure to Comply with the Demand Notice

On the off chance that a taxpayer gets a demand notice for tax payment, at that point he/she needs to pay that sum within 30 days of receiving the notice. This would occur during the time spent evaluating your ITR the assessee discovers that you need to pay more tax than what has been paid. In the event that this installment isn’t done, at that point, the citizen would be viewed as a defaulter and further penalty will be imposed on that individual. After paying the tax, the taxpayer likewise needs to advise the individual whose name is referenced in the notification, about the payment

For more information, visit the website of All India ITR

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