Section 140A(3) Penalty for non-payment of self-assessment tax

Section 140A of the Income Tax Act covers the provisions relating to the payment of self-assessment tax. Whereas, section 140A (3) of the Income Tax Act deals with the penalty for non-payment of self-assessment tax.

As per section 140A (3), if the taxpayer fails to pay the self-assessment tax (either wholly or partly) or interest or fee, then, such taxpayer shall be treated as an assessee in default. In such a case, the penalty would be imposed by the assessing officer as per his discretion.

The current article elucidates applicability of penalty for non-payment of self-assessment tax along with the amount of penalty payable thereon.

Understanding how and when the penalty under section 140A (3) of the Income Tax Act is leviable –

It goes without saying that the taxpayer, earning above the exemption limit, is required to duly discharge its income tax liability. Further, it is also important to note here that, the taxpayer can file the income tax return only after discharging its entire income tax liability.

Such income tax liability is discharged by the taxpayer in various forms like advance tax or tax deduction at source (TDS) or self-assessment tax. Section 140A (1) deals with the self-assessment tax. In simple terms, self-assessment tax refers to the balance tax payable by the taxpayer after taking into account advance tax and TDS.

In case the taxpayer fails in making payment of such self-assessment tax (along with interest and fee), then, such taxpayer would be liable to pay the penalty under section 140A (3) of the Income Tax Act.

Amount of penalty for non-payment of self-assessment tax –

Following two section needs to be referred simultaneously, in order to understand the penalty amount in case of non-payment of whole or part of self-assessment tax or interest or fees –

1. Section 140A (3) of the Income Tax Act; and

2. Section 221 (1) of the Income Tax Act

As per section 140A (3), in case the taxpayer defaults in making payment of the whole or part of self-assessment tax or interest or fees, then, such taxpayer shall be ‘deemed to be an assessee in default’ to the extent of the unpaid tax or interest or fee.

Section 221 (1) levies penalty under the case when the taxpayer is ‘deemed to be an assessee in default’. As per said section, the penalty in such case would be an amount as directed by the Assessing Officer (AO). However, the maximum amount of penalty cannot exceed the amount of tax in arrears.

Synopsis –

In case the tax is payable at the time of filing of the income tax return, the taxpayer is required to pay self-assessment tax first, and the income tax return can be filed only and only after payment of such self-assessment tax.

In case the taxpayer defaults in payment of self-assessment tax, he would be liable to pay penalty of an amount as directed by the AO, however, such penalty amount cannot exceed the arrear tax amount.

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