This article is written by Chirayu Singh Thakur of 2nd Semester of School of Law, MIT WPU.
Abstract:
Tax evasion is a global issue and India is no exception. Tax evasion is considered a serious crime in India and the law has provisions for penalizing and prosecuting those who engage in tax evasion. This research paper provides an overview of the provisions under the Indian taxation law for penalizing and prosecuting tax evaders. The paper discusses the different penalties and prosecution mechanisms that the Indian taxation law has in place for tax evasion. Additionally, the paper also looks into the challenges faced by the Indian government in enforcing these provisions and suggests possible solutions.
Keywords: Penalty, Prosecution, Tax Evasion, Taxation Law, Income Tax Act, 1961
Introduction:
India has a complex taxation system that comprises of several taxes, including income tax, corporate tax, goods and services tax, etc. The government relies on these taxes to fund various social and developmental programs. However, tax evasion has been a persistent problem in India, leading to a significant loss of revenue for the government. Tax evasion not only deprives the government of its revenue but also creates an uneven playing field for taxpayers who pay their dues. Therefore, the Indian taxation law has provisions for penalizing and prosecuting those who engage in tax evasion. The government of India has executed different measures to guarantee that citizens satisfy their commitments towards tax payments. The Income Tax Act, 1961, is the primary legislation that governs the taxation system in India.[1] The demonstration accommodates punishments and arraignment for tax avoidance, which is the adamant endeavor to try not to settle taxes. Tax evasion is a significant problem in India, and it has been estimated that it costs the government over Rs. 1 lakh crore annually.
Penalties for Tax Evasion:
Under the Income Tax Act, 1961, there are different penalties that can be forced on citizens for tax evasion. These penalties can be forced by the assessing official, who is liable for assessing the income tax returns recorded by citizens. Some of the penalties that can be forced for tax evasion are:
1. Penalty under section 271(1)(c): In the event that a citizen has disguised pay or outfitted mistaken specifics of pay, a punishment of 100% to 300% of the expense dodged can be forced. Punishment for under-detailing pay: If a citizen under-report his/her pay or neglects to report any pay, the expense specialists can exact a punishment of half of the duty payable on the under-revealed pay. Moreover, premium at the pace of 1% each month is likewise charged on the under-revealed pay.
2. Penalty under section 270A: If citizen under-reports pay, a penalty of half of the expense payable on the under-revealed pay can be forced. Punishment for non-installment or short installment of expense: In the event that a citizen neglects to pay or short-pays his/her duty risk, a punishment of 1% each month on the neglected sum is imposed until the tax is paid.
3. Penalty under section 271AAB: On the off tax that a citizen proclaims undisclosed pay under the Pay Statement Plan, 2016, a punishment of 10% of the pronounced pay can be forced. Punishment for late recording of government forms: In the event that a citizen neglects to document his/her government form inside the due date, a punishment of Rs. 5,000 is exacted.
4. Penalty under section 271AAC: On the off tax that a citizen proclaims undisclosed pay under the Pradhan Mantri Garib Kalyan Yojana, 2016, a punishment of 10% of the pronounced pay can be forced. Punishment for non-support of books of records: In the event that a citizen neglects to keep up with legitimate books of records, a punishment of Rs. 25,000 can be collected.
Prosecution for Tax Evasion:
Aside from penalties, the Income Tax Act, 1961, likewise accommodates arraignment of citizens who commit tax avoidance. Indictment can be started against citizens who have unshakably endeavored to dodge charges. A portion of the arrangements for indictment under the Income Tax Act, 1961, are:
1. Section 276C: In the event that a citizen stubbornly endeavors to sidestep tax, he/she can be rebuffed with detainment for a term going from a half year to seven years, alongside a fine.
2. Section 277: In the event that a citizen offers a bogus expression having sworn to tell the truth, he/she can be rebuffed with detainment for a term going from 90 days to two years, alongside a fine.
3. Section 276CC: In the event that a citizen neglects to pay the expense due, he/she can be rebuffed with detainment for a term going from 90 days to two years, alongside a fine.
What are the defaults which may invite levy of penalty?
Chapters XVII [2]and XXI of Income-tax Act, 1961, contain various provisions empowering an Income-tax Authority to levy penalty in case of certain defaults.[3][4]
What are the defaults which may invite levy of penalty?
(I) When the assessee is in default or is considered to be in default in making installment of duty. counting the duty deducted at source, advance expense and the self-appraisal charge. [Section 221 read with Sec.201(1)]
(ii) Inability to pay the development charge as coordinated by the Assessing Official or as assessed by the assessee. [Section 273(1)]
(iii) Inability to conform to a notification gave under section 142(1) or 143(2) or inability to consent to the course given under section 142(2A) to get the records evaluated. [Section 271(1)(b)]
(iv) Covering of points of interest of pay or outfitting of incorrect specifics of pay. [Section 271(1)(c)]
(v) Inability to keep up with books of records and archives by people carrying on calling or business as recommended under section 44AA. [Section 271A]
(vi) Inability to get the records evaluated in recommended conditions or inability to acquire the endorsed review report inside endorsed time span of inability to outfit the review report alongside the return, as expected under section 44AB. [Section 271B]
(vii) Inability to buy into the qualified issue of capital [Section 271BB]
(viia) Penalty for inability to deduct charge at source. [Section 271C]
(viii) Tolerating of any credit or store or reimbursement of store of Rs.20,000 or more in any case than by account payee check or record payee draft, in negation of the provisions of section 269SS. [Section 271D]
(viiia) Reimbursement of credit in contradiction of the circumstances forced in section 269T. [Section 271E]
(viiib) A Disappointment of document the arrival of pay as expected under section 239 (1), will involve burden of punishment. [Section 271F][5]
(ix) Refusal to reply in contradiction of legitimate commitment. [Section 272A(1)(a)]
(x) Refusal to sign any explanation made over annual duty procedures. [Section 272A(1)(b)]
(xi) Inability to join in or give proof or produce books of records and archives in consistence with the prerequisites of request under segment 131(1). [Section 272A(1)(c)]
(xii) Inability to follow the arrangements of section 139A managing the application for and allocation of Long-lasting Record Number or General File Register Number. [Section 272A(1)(d)]
(xiii) Inability to outfit data with respect to protections. [Section 272A(2)(a)]
(xiv) Inability to pull out of discontinuance of business or calling. [Section 272A(2)(b)]
(xv) Inability to furnish in due time information sought under section 133 of Income-tax Act. [Section 272A(2](c)]
(xvi) Inability to furnish sooner or later recommended returns/articulations. [Section 272A(2][c)]
(xvii)Failure to permit examination or take duplicates of registers of registers of organizations. [Section 272A(2](d)]
(xviii) Inability to outfit eventually the arrival of pay by altruistic or strict foundations. [Section 272A(2)(e)]
(xix) Inability to convey sooner or later a duplicate of statement of non-derivation of duty at source u/s.197A. [Section 272A(2)(f)]
(xx) Inability to outfit a testament of duty deducted at source to the individual for whose benefit charge has been deducted or gathered as expected by Section203 or Section206C [Section 272A(2)(g)]
(xxi) Inability to deduct and pay charge from compensation payable to a worker as coordinated by the Surveying Official or the Duty Recuperation Official as expected by Section 226(2). [Section272A(2)(h)]
(xxii) Inability to permit an Income-tax Authority to gather any data valuable or pertinent to the motivations behind Income-tax Act u/s.133B. [Section 272AA)]
(xxiii) Inability to comply with the provisions of section 203a dealing with tax Deduction Account Number [Section 272BB][6]
Is the levy of penalty automatic?
No penalty under the Income-tax Act is imposed unless the person concerned has been given reasonable opportunity of being heard.[7]
What is the minimum and maximum penalty leviable?
The quantum of any penalty assessed or imposable, if specified conditions are gratified. The assessee should freely and by good faith make full and true exposure of profit previous to the discovery of hermitage by the laying Bobby[8]
Can the penalty be reduced or waived?
The Commissioner of Income-tax may reduce or waive the amount of any penalty imposed or imposable, if prescribed conditions are satisfied. The assessee should voluntarily and in good faith make full and true disclosure of income prior to the detection of concealment by the Assessing Officer.[9]
Some Case Laws
- Addl. Commissioner of Income-Tax … vs Dargapandarinath Tuljayya & Co. on 10 December, 1975. (Bench: C Reddy, J Reddy) Andhra High Court
- Taiyabji Lukmanji vs Commissioner of Income-Tax, … on 16 April, 1981. (Bench: R Mankad, Thakkar) Gujarat High Court
- Ram Gulam Shah and Sons and Ors. vs Commissioner of Income-Tax And … on 8 July, 1999. (Bench: N Roy) Patna High Court
- Woodcrafts Enterprises … vs Sales Tax Officer and Ors. on 2 March, 1970.
- Bombay Cloth Syndicate vs Commissioner of Income-Tax on 25 September, 1992. Bombay High Court (Bench: P Saraf, V Mohta)[10]
Challenges in Enforcing Penalty and Prosecution Provisions:
In spite of the punishment and arraignment arrangements for tax evasion under the Indian tax collection regulation, there are a few difficulties in implementing these arrangements really. A portion of the significant difficulties are:
1. Lack of Adequate Resources: The expense experts in India frequently face a lack of assets, including labor supply, innovation, and foundation, which makes it challenging for them to recognize and indict tax evaders. This absence of assets additionally hampers their capacity to lead reviews and examinations, which are vital in distinguishing tax evasion.[11]
2.Complex Tax Laws: The Indian tax collection framework is perplexing, and the expense regulations are frequently challenging to decipher and execute. This intricacy can make it provoking for charge specialists to recognize cases of tax avoidance and indict the wrongdoers.[12]
3. Lengthy Legal Processes: The lawful interaction for arraigning charge dodgers in India can be tedious and extensive, which can prompt defers in settling cases. This can be a hindrance for charge specialists to make a move against tax evaders.[13]
4. Lack of Public Awareness: Numerous citizens in India are not completely mindful of their assessment commitments and the outcomes of tax evasion. This absence of mindfulness can prompt unintentional nonconsistency, while deliberate expense dodgers can take advantage of this obliviousness to stay away from penalties and prosecution.[14]
5. Corruption: Corruption is an unavoidable issue in India, and tax evasion is no exemption. Tax specialists might be vulnerable to pay off or different types of corruption, which can undermine the enforcement of penalty and prosecution provisions.[15]
Possible Solutions:
To address the difficulties in implementing penalty and prosecution provisions for tax evasion under the Indian taxation law, a few measures can be taken. A portion of the solutions are:
1. Strengthening of Resources: The government ought to give satisfactory assets to the tax specialists, including labor, innovation, and framework, to assist them with actually recognizing and arraign tax evaders.
2. Simplification of Tax Laws: The government can work on tax laws and make them easier to understand. This will assist citizens with grasping their commitments and diminish occurrences of accidental resistance.
3. Streamlining Legal Processes: The government can smooth out the lawful cycles for arraigning charge dodgers, making them more proficient and less tedious.
4. Increasing Public Awareness: The government can send off open mindfulness missions to instruct citizens about their expense commitments and the outcomes of tax avoidance. This will assist with making a culture of duty consistence in the country.
5. Anti-Corruption Measures: The government can do whatever it takes to handle corruption in the tax administration, including measures to build straightforwardness, responsibility, and trustworthiness in the tax administration.
Penalty and prosecution provisions are crucial in deterring tax evasion and promoting tax compliance. The Indian taxation law has several penalty and prosecution provisions for tax evasion; however, their powerful implementation stays a test. Tending to the difficulties will require a coordinated exertion from the public authority, tax authorities, and citizens themselves. By doing whatever it takes to fortify assets, improve on charge regulations, smooth out legitimate cycles, increment public awareness, and tackle corruption, India can actually implement its punishment and arraignment arrangements and diminish occurrences of tax evasion.
Conclusion:
All in all, the successful execution of penalty and prosecution provisions is crucial in discouraging tax evasion and promoting tax compliance. While the Indian taxation law has penalty and prosecution provisions for tax evasion, tending to these difficulties will require an organized exertion from the government, tax authorities, and citizens. The government can strengthen resources, simplify tax laws, smooth out lawful cycles, increment public awareness, and tackle corruption to carry out penalty and prosecution provisions really. Residents ought to comply with the provisions of the Income Tax Act, 1961, and record their government forms precisely and on chance to keep away from punishments and indictment. At last, simplifying the tax system and diminishing the weight of consistence on residents is fundamental to advance tax consistence and decrease cases of tax evasion.
Penalty and prosecution provisions are crucial in deterring tax evasion and promoting tax compliance. The Indian taxation law has a few penalty and prosecution provisions for tax evasion; however, their powerful implementation stays a test. Tending to the difficulties will require a coordinated exertion from the government, tax authorities, and citizens themselves. By doing whatever it takes to fortify assets, simplify tax laws, smooth out legitimate cycles, increment public awareness, and tackle corruption, India can actually implement its penalty and prosecution provisions and reduce instances of tax evasion. The Indian government has found a way multiple ways to control tax evasion and guarantee that citizens satisfy their expense commitments. Penalty and prosecution are two of the actions that are utilized to dissuade tax evasion. Citizen’s ought to guarantee that they agree with the provisions of the Income Tax Act, 1961, and document their government forms precisely and on chance to stay away from penalties and prosecution. Also, the government ought to keep on doing whatever it may take to simplify the tax system and decrease the burden of compliance on citizens.
[1] Taxmann’s Law & Practice of Income Tax, Strictly Legal.
[2] Chapter XVII – collection and recovery of tax, Income Tax Act, 1961.
[3] Chapter XXI – penalties imposable, Income Tax Act, 1961.
[4] Amaresh Patel, Taxation law, Into Legal World,26 April 2018.
[5] Tax Guru Team, Income Tax – Articles, 18 Jun 2022.
[6] All these sections are part of the Income-tax Act, 1961.
[7] Tax guru, Income Tax – Articles, 18 Jun 2022.
[8] Tax guru, Income Tax – Articles, 18 Jun 2022.
[9] Tax guru, Income Tax – Articles, 18 Jun 2022.
[10] Indian kanoon
[11] “Tax Evasion in India: Causes, Consequences and Remedies” by Dr. V. Bhaskara Rao (2017)
[12] “Tax Evasion in India: An Empirical Study” by Dr. Shailender Singh (2018)
[13] “Tax Evasion in India: Causes, Consequences and Remedies” by Dr. V. Bhaskara Rao (2017)
[14] “Fighting tax evasion in India: The role of tax administration” by PwC India (2019)
[15] “Corruption in India: Causes and Remedial Measures” by Dr. Pallavi Singh (2016)
