Non-Compliance Of Tax: Beware About Fines & Penalties

Mukunda Tripathee

Tax is a compulsory obligation of legal entities and individuals, which is imposed by government of a country to generate sufficient revenues to cover huge current and capital expenditures of a nation. Every citizen of the country is lawful to pay tax to the government honestly from their incomes or earnings. Nobody can escape from this obligation. Tax is imposed on persons according to their level of incomes or earnings. Tax serves as an instrument for promoting economic growth, stability and efficiency of nation.

Direct and Indirect Tax

Based on the shifting of the burden of tax, tax is classified in to two group i.e. direct tax and indirect tax.  Income tax, property tax, vehicle tax, causal gain tax etc are the examples of direct tax, where the obligation of paying tax to the government cannot be shifted from one person to another person. So, the tax which is directly collected by the nation from the concern person who bears the tax burden is called direct tax.

Similarly, value added tax, excise duty, custom duty, service tax etc are examples of indirect tax. The obligation of indirect tax partly or wholly can be shifted from one to another. In indirect tax, the person paying tax and bearing tax may be different.

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Non-Compliance Of Tax

Trying to escape from tax, to remain out of the tax net, failure to maintain proper accounts or submit tax return within stipulated time, failure to pay or delay to pay tax, misleading the statement, hiding or  over writing or under writing of amount etc. are some of examples of non-compliance.

In case of non-compliance of tax, tax law prescribes fee. The main objective of imposing fee is to minimize the tendency of non-compliance of tax and default. If fees and interest are not imposed to the late payer or defaulter, taxpayer may postpone payment of tax to gain interest as a financial incentive on the one side. Likewise, on the other side, there can be imbalance in government revenue for current and capital expenditures.

Fees and charges refers to the additional amount which is imposed by government on entities or individuals if they fail to pay tax within stipulated time as per tax law, fail to lodge an income return or statement, makes false or misleading statements relating to the calculation of taxable income etc.

Instances of Non-compliances of Tax and Provisions of Fees and Interest

Fee is the punishment or penalty that is imposed by the government on someone is given doing something wrong which is against low or rules. Law makes authorized to tax officers to impose fees and interest as per following.

As per income tax act-2058, sections 117,118,119,120, and 120 have prescribed fees and interest for non-compliance of tax as per following.

1. Fee for failure to maintain documentation or file statements or returns of income (Sec.117)

A taxpayer not submitting return of income (under section 95(1)) is subject to a fee of Rs. 5000 per return.

Liable to pay fee of 0.1% p.a on assessable income after inclusion of any receipt and without any deduction or Rs. 100 p.m whichever is higher, if failing to maintain documentation or file statements or returns of income.

Should pay a fee 0.1% p.a on income report therein, if tax-exempt entity failing to submit financial statements within stipulated time.

Liable to pay fee of 1.5% p.a for each month, if the withholding agent failing to file statements.

2. Interest for understating (minimizing)estimated tax payable by installment (Sec.118)

General interest p.a on understating amount of tax is imposed for each month, if the payer’s estimate of tax is payable in each installment is less the 90% of the correct amount.

3. Interest for failure of to pay tax(Sec-119) and fees for failure to comply income Tax Act or Rules (Sec.119ka)

A tax payer failing to pay tax with in stipulated time as per income tax act is liable to pay general interest rate p.a for each month. Similarly, if taxpayer failing to comply the provision laid down in income tax act is liable to pay fee of Rs. 5,000 to Rs. 25,000.

4. If taxpayer failure to pay tax within the extended time (Sec-119(4))

If the tax payer fails to pay tax on installment within the period given by tax officers upon request of tax payer’s before case filed to a court is subject to recover along with interest of 5% p.a on the due tax amount.

5. Fee for making false or misleading statements (Sec-120)

In case of false or misleading statement without knowingly or recklessly, a charge of 50% of the underpayment of tax is taken. Similarly for false or misleading statement knowingly or recklessly, a charge of 100% of the underpayment of tax is liable to pay.

6. Fee for aiding or abetting or involvement of other person to commit an offence (Sec.121).

In case, a person who knowingly supports or assists another person to commit an offence or counsels or influences another, a fee equal to 100% of the underpayment of tax is liable to pay.

So, to be a rational people and pay tax to the government as per our income is our compulsory obligation.

(Mr. Mukunda Tripathee is currently working in the banking sector)

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