While the tax burden for an average taxpayer will lighten marginally, for tax evaders the Direct Taxes Code proposes to reduce penalties substantially. The DTC Bill, tabled in Parliament on Monday, proposes that anyone under-reporting their tax base would have to pay a maximum penalty of two times the tax sought to be evaded.
Under the Income-Tax Act, 1961, currently in force, the fine for concealing particulars of income or furnishing inaccurate information ranges between one and three times the amount sought to be evaded.
“A person shall be liable to a penalty if he has under reported the tax bases for any financial year. The penalty shall be a sum, which shall not be less than, but which shall not exceed two times the amount of tax payable in respect of the amount of tax bases under reported for the financial year,” the code states.
So, if the tax due on an under-reported amount is Rs 100, then the maximum penalty proposed to be levied is Rs 200 instead of a maximum of Rs 300 at present.
Under DTC, the tax department, however, intends to arm itself with more sweeping powers to impose a penalty. Under the I-T Act, a penalty is imposed for concealment of particulars of income. It is now proposed to levy a penalty on under-reporting the tax base.
Tax experts said at present, if you are able to convince the government that your intent was not to evade tax, you will be let off without a penalty.
But under the new legislation, even if there is a minor mistake in the calculation of taxable income or tax liability, the government can impose a penalty for under-reporting.
A finance ministry official, however, said that though a maximum penalty of three times the tax sought to be evaded was allowed under the I-T Act, in practice it was never levied. The official said the penalty is proposed to be reduced under DTC, as the actual penalty imposed was 100-200 per cent in most cases.
“A 100 per cent penalty, which is the lower limit, is generally imposed in practice. A 300 per cent penalty is imposed only in very serious cases,” said KPMG executive director Rakesh Dharawat.
For wilful falsification of books of accounts or documents, DTC has proposed to lower the penalty. It has proposed a penalty ranging between Rs 25,000 and Rs 300,000, apart from rigorous imprisonment.
At present, the penalty is at the discretion of the assessing officer. A similar provision has also been made in case a person willfully attempts to evade tax. Here, a penalty of Rs 50,000 to Rs 500,000 is proposed to be imposed if the amount sought to be evaded is more than Rs 100,000, along with imprisonment.