Governments all throughout the world deal with the serious problem of tax evasion. From the beginning of the liberalization and globalization of the Indian economy, it has grown more and more typical in India. Any action intended to conceal, understate, or fraudulently report income to reduce one’s tax burden is referred to as tax evasion. It involves willfully underpaying taxes or purposefully failing to pay the full amount due.
The Income Tax Act of 1961 imposes severe fines for failure to file taxes and other types of tax evasion. Tax evasion reduces the government’s revenue and leads to an inequitable allocation of resources. Depending on how serious the offence was, several sanctions may be imposed, including both monetary fines and jail time.
What are the Different Methods that Taxpayers Use to Evade Taxes?
Mentioned below are the different illegal methods that taxpayers use to evade taxes:
Failure to Remit Due Taxes
The failure to pay taxes when they are due is one of the most popular tax evasion methods. Taxes can be purposefully avoided by people or businesses, even if they owe money. This may be accomplished by underreporting income or making erroneous deduction claims. Tax debts that are not paid on time may be subject to severe fines and other legal consequences.
Fraudulent Attempts to Avoid Paying Taxes
Several firms use smuggling as a means of evading various taxes, including import-export taxes, customs charges, and state taxes. According to Indian law, this is forbidden and will result in severe punishments. Tax evasion attempts may result in even harsher punishments for those who are detected.
Read Also: Legal Provisions for Tax Evaders and ITR Non-filers Under I-T Act
Inability to Bring Money into the Country
The Indian IT department does not have authority over foreign bank accounts. To avoid paying taxes on their income, some people decide to conceal money in offshore accounts. If you are discovered doing this, you might face serious penalties and perhaps jail time.
Individuals Take Advantage of False Documentation
To guarantee that people have more available cash, the government grants some exemptions to people. Unfortunately, some individuals take advantage of this by using fictitious documentation to apply for these exemptions even if they do not meet the requirements. This is regarded as a type of tax fraud and is forbidden by the law.
Submitting Incorrectly ITR Returns
The filing of false tax returns is another way to evade taxes. To lower their tax burden or perhaps avoid paying any taxes at all, some people would submit fraudulent information or understate their entire income. If the person is caught, it may potentially result in legal action.
Maintains False Financial Reports
In order to imply a lower yearly income, businesses may maintain false balance sheets and account books. They are able to lower their overall tax burden as a result. On the other hand, this is seen as a kind of fraud and may lead to legal action being taken against the company.
Bribery Method of Tax Evasion
Bribery is another method of tax evasion. Some people may pay off authorities in order to reduce or even get rid of their tax liability. Bribery is against the law, and those who are discovered committing it risk receiving harsh punishments.
What Sanctions Does the I-T Act Impose for Tax Evasion?
A fine of up to Rs 5,000 is the primary punishment for filing income tax forms after the deadline. Depending on the facts of the case, the assessing officer will choose the fine amount. If the taxpayer fails to file their returns by the deadline and/or in full conformity with the pertinent requirements of the Income Tax Act of 1961, they will be subject to this fine.
- According to Section 271(C), if the taxpayer attempts to hide the original profits or income, a penalty of between 100% and 300% of the tax evaded would be levied. Income concealment is a serious offence that carries heavy fines and perhaps possible legal action.
- According to Section 276C of the Income Tax Act, a taxpayer found guilty of knowingly attempting to evade or underreport income above Rs 25 lakh may be sentenced to at least 6 months up to 7 years in jail and incur significant fines.
- Taxpayers are required to submit an audit report or have their accounts audited in compliance with Section 44AB. If the assessee doesn’t comply, they will be fined 0.5% of their total sales, or up to Rs 150,000, whichever is more.
- Giving false information when completing an ITR, including PAN information, is punished. A penalty of Rs. 10,000 is assessed for supplying a false Permanent Account Number(PAN), while not providing a PAN results in a larger TDS deduction of 20% rather than 10%.
Any person who deducts tax at the source or collects tax at the source would need to collect the tax deduction and collection account number (TAN). A penalty of Rs 10,000 shall be levied in the matter of failure.
Tax evasion is subject to criminal punishment in addition to monetary penalties. Depending on how serious the crime was, the perpetrator may be prosecuted in court and perhaps sentenced to jail.
Moreover, the offender’s assets could be taken and sold at auction to pay the unpaid taxes. Moreover, the offender can be banned from receiving specific government benefits. It is always advisable to pay your taxes in full in compliance with income tax laws.
