Misreported income leads to penalty: I-T dept advises to file revised ITR

The Income Tax department has advised taxpayers to rectify any inaccurate refund claims or exemptions by submitting revised returns for the current assessment year and updated filings for the previous assessment years. 

The deadline for filing Income Tax Returns (ITR) for the assessment year (AY) 2023-24 was July 31, 2023. If you fail to file your returns by that date, you have the option to submit a belated return until December 31, 2023. 

“Misreporting of Income may result in penalty and prosecution proceedings under provisions of Income Tax Act, 1961,” said the I-T department in a post on X (formally Twitter).

They asked taxpayers to accurately report the following deductions and exemptions: 

1. House rent paid
2. Interest paid on education loan
3. Principal and interest on home loan
4. Health Insurance premium paid for self and family
5. Deduction for disabled Individuals
6. Donations to political parties/charitable Institutions/trusts

When claiming deductions or exemptions in your ITR, it is crucial to ensure that all deductions are genuine and are supported by authentic payments and documentation, the claims should result in misreporting of income, said the post. 

What happens if you report income inaccurately?

If an assessee claims fake deductions under the Income Tax Act, it constitutes a form of tax evasion. This serves as grounds for the imposition of penalties by tax authorities, said Maneet Pal Singh, Partner, I.P. Pasricha & Co. With Advanced Information Systems (AIS) and Transaction Information Systems (TIS), tax authorities have all of the data about taxpayers that allows them to closely examine the deductions and exemptions claimed by taxpayers in detail.

“Tax evasion involves actions such as underreporting income, inflating expenses, or claiming fake deductions to reduce the tax liability. The penalties vary depending on the nature and severity of the offence, some potential penalties may be imposed,” said Singh.

Here are some of examples of penalties under the IT Act: 

A penalty under Section 270A can be imposed for under-reporting and misreporting of income. According to the I-T department, the penalty can be a sum equal to 50 per cent of the amount of tax payable on under-reported income. However, if under-reported income is in consequence of any misreporting, the penalty can be equal to 200 per cent of the amount of tax payable on under-reported income.

The following cases will be considered as misreporting of income:

1. Misrepresentation or suppression of facts.
2. Failure to record investments in the books of account.
3. Claim of expenditure not substantiated by any evidence.
4. Recording of any false entry in the books of account.
5. Failure to record any receipt in books of account having a bearing on total income.
6. Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction. 

Section 271(1)(c) deals with the penalty for concealment of income or furnishing inaccurate particulars of income. If the tax authorities determine that the assessee has deliberately provided inaccurate information regarding deductions, a penalty of 100 per cent to 300 per cent of the tax sought to be evaded may be levied. 

Failure to pay self-assessment tax under section 140A(3) may result in penalties determined by the Assessing Officer.

Additionally, offences such as the wilful attempt to evade tax or failure to furnish returns under section 276C(1) may result in imprisonment and fines based on the severity of the offence.

“Tax authorities thoroughly examine tax returns to ensure the accuracy of reported income and claimed deductions. Discrepancies or inconsistencies can trigger further scrutiny,” according to ClearTax.

How to correct your mistake?

If you have submitted returns with inaccurate information, you will have to file revised returns as per Section 139(5) of the Income Tax Act. The provision allows taxpayers to revise their original returns in case of errors or if any income or expenses were inadvertently omitted. Moreover, if your initial ITR is still unverified, you can utilise the new 'Discard' option on the income tax portal. 

Given that the deadline for filing the ITR has passed, you are now required to file belated returns under Section 139(4) of the Income Tax Act.

Point to note: Belated returns incur a penalty under Section 234F, which amounts to Rs 5,000 for belated tax returns. However, this penalty can be reduced to Rs 1,000 for individuals with a total income below Rs 5 lakh. Additionally, interest under Section 234A, calculated at a rate of one per cent per month, is levied on the unpaid tax amount for each month or part thereof in the case of belated filing.