Taxpayers could face penalties of up to 200% of the tax payable in cases of misreporting income, according to the latest penalty framework released by the Income Tax Department for Assessment Year 2026–27.
The updated provisions outline a range of penalties for non-compliance with the Income-tax Act, covering defaults such as delayed filing, non-payment of taxes, under-reporting of income and procedural lapses. The department has presented the framework as an informational guide to help taxpayers understand potential financial consequences of various violations.
Under the rules, under-reporting of income can attract a penalty of 50% of the tax payable on such income. However, where the under-reporting is due to misreporting—such as suppression of facts or false entries—the penalty can increase to 200% of the tax amount.
Apart from income misreporting, delays in filing returns or statements may also lead to additional charges.
For instance, late filing of income tax returns can attract a fee of ₹5,000, reduced to ₹1,000 for individuals with total income up to ₹5 lakh. Failure to file certain statements, including tax deducted at source (TDS) filings, may result in a penalty of ₹200 per day, subject to limits.
The framework also specifies that failure to pay taxes, including self-assessment tax, may invite penalties determined by the assessing officer, typically capped at the amount of tax in arrears.
In more serious cases, such as detection of undisclosed income during search operations, penalties can range from 10% to 60% of the undisclosed income, depending on factors like disclosure and timing of payment.
Commenting on compliance trends, CEO and Founder of Mudrex, said that with increasing scrutiny on under-reported income, crypto investors need to be particularly careful about disclosures.
He noted that crypto activity often spans multiple trades, wallets and platforms, making reporting more complex and prone to gaps.
Using consolidated tax reports provided by FIU-IND registered exchanges, cross-checking with Annual Information Statements (AIS), and maintaining complete disclosure can help investors avoid penalties and remain compliant, he added.
The rules further prescribe penalties for procedural non-compliance, including failure to maintain books of accounts, get accounts audited, or furnish required documentation. Violations related to cash transactions—such as accepting or repaying loans beyond prescribed limits—can attract penalties equal to the amount involved.
At the same time, the law provides relief in certain cases. No penalty may be imposed if the taxpayer can demonstrate a “reasonable cause” for the failure. There are also provisions allowing eligible taxpayers to seek immunity from penalties under specified conditions.
The department has clarified that the document is meant for general awareness and does not substitute legal provisions. Taxpayers should refer to relevant laws, rules and official notifications for detailed interpretation.
