Navigating Non-Compliance Risks under the Income Tax Act: A Guide for Businesses and Taxpayers

The Income-tax Act, 1961 sets out essential compliance obligations for all taxpayers in India. Non-compliance, whether due to oversight or negligence, can result in significant financial costs, legal exposure, and reputational risks. This article provides a concise guide to key compliance obligations and the consequences of non-compliance, helping taxpayers safeguard against avoidable penalties.

Timely Filing of Income Tax Returns (ITR)

• Obligation: All Assessees must file their ITR within the prescribed due dates i.e. July 31st for non-audit cases, October 31st for audit cases, and November 30th for those who are subject to transfer pricing provisions.
• Consequences: Delayed filing attracts a late fee under Section 234F of INR 1,000 if total income ≤ INR 5 lakh, and for other cases INR 5,000 if filed by 31st December and INR 10,000 thereafter. In addition, interest under Section 234A is charged at 1% per month or part of the month on outstanding tax from the due date of filing. Further, under Section 139(3), a belated return disallows taxpayers from carry forward of business, capital, or speculative losses.

Accurate Reporting of Income

• Obligation: All income must be reported correctly and supported by proper documentation.
• Consequences: Underreporting or misreporting of income attracts penalties under Section 270A, amounting to 50% and 200% of the tax due respectively.

TDS / TCS Compliance

• Obligation: Assessees must deduct or collect tax at prescribed rates, deposit it by the 7th of the succeeding month (and by April 30th for the month of March), and file quarterly returns on July 31st, October 31st, January 31st, and May 31st for Q1–Q4 respectively.
• Consequences: Section 234E: Late filing fee of INR 200 per day, capped to the total TDS/TCS amount.
• Section 271H: Penalty ranging between INR 10,000 – INR 1,00,000 for failure to file, delayed filing, or furnishing incorrect returns.
• Section 201(1A): Interest at 1% per month or part of the month for delay in deduction and 1.5% per month or part of the month for delay in deposit, for the period of default.
• Section 276B / 276BB: Willful failure to remit TDS/TCS may attract rigorous imprisonment from 3 months to 7 years, along with fine.

Advance Tax Payments

• Obligation: Taxpayers with a liability over INR 10,000 must pay advance tax in four installments: 15% by June 15th, 45% by September 15th, 75% by December 15th and 100% by March 15th. At least 90% must be paid by March 31st to avoid interest. Presumptive taxation taxpayers can pay the full amount by March 15th, with no interest on shortfall from capital gains, dividends, or first-time business income if paid by March 31st.
• Consequences: Interest at 1% per month (or part thereof) is levied under Section 234B if the advance tax paid is less than 90% of the total liability, computed from April 1st of the assessment year until the date of payment or assessment. Additionally, under Section 234C, interest at 1% per month is charged for any delay or shortfall in quarterly advance tax payments applicable up to March 31st of the financial year.

Tax Audit Compliance

• Obligation: Under Section 44AB, every business or professional whose total sales, turnover, or gross receipts exceed prescribed limits must get their accounts audited by a Chartered Accountant. The audit report must be obtained and filed by the due date applicable for ITR submission.
• Consequences: Failure to comply attracts a penalty under Section 271B -0.5% of turnover or gross receipts, subject to a maximum of INR 1,50,000. However, if the delay is due to a reasonable cause, relief may be available under Section 273B.

Disclaimer

The information contained in this document is for information purposes only. In no way, this document should be treated as advice. Please reach out to us or your consultants for undertaking detailed analysis.

This author will not be liable for any loss or damage caused by the reader's reliance on information obtained through this report. The contents are provided for your reference only.

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