Income Tax Return 2024: Taxpayers alert! Filing false claims in ITR to attract THESE penalties

Income tax return filing FY 2023-24: You need to be careful while claiming tax exemptions and deductions in income tax return ITR. The Income Tax Department may ask you for proof for the deductions and tax exemptions you claim in the ITR during processing, whether for the current year or previous years.

Every year, the income tax authorities uncover fraudulent tax refund claims by taxpayers, including by employees of companies. On account of receiving these false refund claims, those taxpayers are served notices by the department. Many times, taxpayers also falsely report losses under the category of income from house property to file fraudulent refund claims.

Falsely claiming tax refunds by misreporting income or presenting false losses to lower one’s taxable income lands assessees in trouble. As per income tax rules, misreporting income is against the law and bound to attract heavy penalties. Section 270 of the Income Tax Act was amended post demonetisation to impose heavy penalties for misreporting and under-reporting of income by taxpayers.

What is Section 270 of the Income Tax Act?

Under Section 270A of the Income Tax Act, individuals who underreport or misreport their income may face penalties as determined by an assessing officer (AO), a commissioner (appeals), a principal commissioner, or a commissioner. These penalties can range from 50% to 200%. Enacted in the 2016 budget, this provision became effective in FY2016-17.

What is Under Reporting of Income Under Section 270A?

When an assessee discloses to the income tax department a smaller amount than his or her actual income, this is termed as under-reporting. On several occasions, this happens for various reasons, such as poor record-keeping or factual mistakes in calculating income.

Here are some examples of under-reporting of income under the Income Tax Act:

• If you neglect to file or disclose any income, or a portion thereof, in the books of account or income tax return.
• When the income assessed by the Income Tax (I-T) Department is more than the income disclosed in the ITR.
• When you don’t file a return of income, but the income assessed by the I-T Department is more than the basic exemption limit.
• If the actual income is more than the what has been declared or computed under special tax sections (such as 115JB or 115JC), it is considered as computed by the Income Tax Department.
• It is considered as under-reporting of income, where the assessed or reassessed income results in a reduction of loss or transforms such loss into income.

Penalty Under Section 270A of the Income Tax Act:

When it is confirmed by the assessing officer that there is an under-reporting or mis-reporting of income, and a penalty under Section 270A of the Income Tax Act is imposed, the penalty provisions are as follows:

On under-reporting of income: The penalty imposed is equal to 50% of the tax due on the under-reported income.

On misreporting income: The penalty shall be equal to 200% of the tax due on the misreported income.

Taxpayers must note that the penalty imposed under Section 270A will be in addition to the tax due on under-reported or misreported income. The penalty for misreporting earnings (200%) is applied when an assessee deliberately gives false or misleading information.