Are you wondering what tax evasion is? It is one of the biggest financial issues that the country has faced over the years. This article provides a guide to the same for your benefit.
What is Tax Evasion?
Let us take a closer look at what is tax evasion. It is a fraudulent or illegal practice where a company or person avoids paying taxes and also endeavours to hide or falsify earnings/income. Some other practices include not reporting cash transactions, inflating deductions, and so on. Tax evasion happens due to the intentional efforts made by organizations and individuals to avoid the payment of taxes by using unfair and illegal means.
Examples of Tax Evasion
There are several examples of tax evasion that can be cited to illustrate the concept. For instance, consider an individual or company misreporting income in a financial year and stating a lower amount. Or even intentionally offering false books of accounts and showing false losses, which help avoid the payment of taxes. Many companies, for example, channel funds via offshore entities/branches to avoid tax payments in their home countries.
What are the Consequences of Tax Evasion?
Tax evasion is illegal and there are several penalties outlined in Chapter XXII of the Income Tax Act of 1961. At the same time, the Income Tax Act has also come up with the General Anti-Avoidance Rules from 1st April 2017. The aim here is to curb illegal practices of taxpayers and practitioners, helping them avoid taxes, where the impact of the transactions/arrangements exceeds more than Rs. 3 crore in one financial year.
Section 276C directly addresses tax evasion in India, laying down the penalties and other legal consequences for the same. Some of these provisions include the following:
- Legal action under the PMLA (Prevention of Money Laundering) Act, particularly when income is hidden via illicit practices/methods.
- Failure to audit accounts or provide a report on the audit will result in a penalty of 0.5% of the total sales or turnover of gross receipts, or Rs. 1.5 lakh, whichever is higher (Section 44AB).
- Failure to present an accountant’s report as needed under Section 92E will lead to a penalty of Rs. 1 lakh or higher.
- Under Section 270A, the penalty for underreporting income is 50% of the payable tax, and it can be up to 200% of the dues.
- Section 271 (1) (c) also levies a penalty of 100-300% of the taxes that the person/company attempts to evade by concealing income or providing inaccurate information.
- Willful tax evasion may also lead to imprisonment in severe cases. This may be for a term between six months and seven years, involving substantial amounts, fraud, and repeated offenses.
- Section 271F has a penalty of Rs. 5,000 for not filing income tax returns by the due date. It is Rs. 1,000 in case the total income is less than Rs. 5 lakh.
- Non-compliance with the Section 115WD (2) or 115WE(2) notice leads to penalties of Rs. 100 for each day of the default timeline.
- Section 271C has penalties for non-deduction of TDS, which is equal to the amount of tax not paid or deducted.
- Not collecting tax at source (TCS) under Section 271CA or failure to pay/collect any part of tax under Section 206C (1) will come with a penalty equivalent to the amount that should have been collected/paid.
Evasion is what leads to a major tax gap in the country, i.e. the difference between the estimated potential tax collections and the actual collections. Tax authorities can also seize the assets of taxpayers in extreme situations, including properties, bank accounts, and so on. Sometimes people or companies convicted of evasion may be disqualified and blacklisted from public office, participation in Government tenders, or specific professional activities.
Brandon is the cheif editor and writer at WorldUnfolds.com. With a passion for storytelling and a keen editorial eye, he crafts engaging content that captivates and enlightens readers worldwide.
