Arjuna (Fictional Character): Krishna, the “Indian Super League” for football is expected to run from November 2020 to March 2021. It will be really interesting game to link Football and Income Tax Provisions. Could you explain it to me in playful manner?
Krishna (Fictional Character): Arjuna, as in football, all players run behind the ball and make a goal. The referee keeps a tab on the players blows whistle and in the event of foul play penalties are incurred in the form of “Yellow Card”, “Red Card” and other penalties. The reason behind these penalties is to ensure fair play and adherence to the rules of the game. Similarly the reason behind levying penalty under income tax is to make sure that the taxpayers comply with the Income Tax Act, officer issues notices (blows whistle) and in case of foul play levies penalty. If the game of Football and Income tax Act is connected, then “Income Tax Act” becomes the “Football Ground”, “Referee” is the “Income Tax Officer”, “Goal Keeper” is “Tax Consultant”, and the most importantly the “Taxpayers” are the “Players” of the game. One can easily learn only about following tax laws with such a correlation.
Arjuna: Krishna, What are the provisions of Penalty similar to the “Yellow Card?”
Krishna: Arjuna, while playing on the Football Ground if, a player pushes other players or creates any obstruction then the referee whistles and show a Yellow Card. Yellow Card represents a mild penalty. If you look at Income Tax, the taxpayers are intimated by a prior notice and thereafter a penalty is levied. One needs to understand some provisions of mild penalty. As per Section 271F, if Income Tax Return is not filed before the due date then a notice may be sent. After that if return is still not filed before the end assessment year, then following penalty will be levied:
|Date of Filing||Fees Leviable|
|If the return is furnished after the due date of filing but on or before the 31st day of December.||Five thousand rupees|
|In any other case||Ten thousand rupees|
|Note: If the total income of the person does not exceed five lakh rupees, the fee payable under this section shall not exceed one thousand rupees.|
As per section 271 (1) (b) if the notice is unattended by the taxpayer or a reply is not received, the income tax officer may levy penalty of up to Rs. 10,000/-. Similarly as per section 271 H if incorrect TDS returns are filed then penalty of minimum Rs. 10,000/- to maximum of Rs. 100,000/- may be imposed. Apart from these, if income tax act is not conformed to, there are various other provisions under which the income tax officer may raise Yellow card.
Arjuna: Krishna, Which provisions of the income tax can fall under the “Red Card” penalty?
Krishna: Arjuna, on the Football Ground, if a player “knowingly” pushes another player or creates obstructions then the referee gives a Red Card penalty which results in the player being sent out of the ground. There are various provisions in Income Tax Act which are synonymous to the Red Card penalty. As per section 271 A if books of accounts are not maintained then penalty of Rs. 25,000/- may be imposed. If a Tax Audit is not carried out then a minimum penalty of 0.5% of the turnover or maximum of Rs. 150,000/- may be imposed. Similarly as per section 271 D and 271 E if loan or deposit is accepted or repaid in cash above Rs. 20,000/- then penalty equivalent of that amount may be levied. As per section 271 C if provisions of TDS were not followed then penalty equivalent to that amount may be levied. As per section 145 if proper books of accounts are not maintained then the penalty provisions are like the “Red Card” which means that the income tax officer rejects the books of accounts and self-assesse and impose tax, interest and penalty.
Arjuna: Krishna, it will be intriguing to know how “Penalty Kick” works on the taxpayer!
Krishna: Arjuna, Penalty Kick can have a very severe impact. In Football when the player goes in the “D” area for making a goal and opponent player knowingly obstruct then a Penalty Kick is given. After that the goal keeper can only rely on his luck to save the goal and the team may win or lose the game! Similarly if income tax provisions were knowingly not followed then a heavy penalty may be levied. In this “Knowingly” word is very important. For e.g. if taxpayer knowingly avails deduction by showing false expenditure or conceals sales and evades tax, then a heavy penalty is imposed, which is just like penalty kick. As per section 270A if taxpayers conceal the income or give false particulars or information of expenses or income then a penalty of minimum of 100% of tax evaded and maximum of 300% of penalty may be levied. This is one of the harsher provisions of penalty under the Income tax. Many cases are filed against this provision of penalty. Further in the game of football, in a few rare cases, a goal may be cancelled due to the “Off Side” (i.e. in wrong direction or not as per rule of the game). Similarly if wrong penalty is levied then taxpayer may get relief in the appeal. But this is possible only if provisions of the law are followed. Unaware taxpayers may suffer because of their bonafied belief.
Arjuna: Krishna, guide as to what a taxpayer should do to avoid a penalty?
Krishna: Arjuna, one of the major reasons behind levying penalty is the financial loss of the government. Loss is incurred if tax or interest is not paid on time and hence penalty is imposed. Further penalty, provisions are made for punishing tax evaders. Many Taxpayers get confused between “Tax Planning” and “Tax Avoidance”. “Tax Planning” means planning in way such that tax can be reduced in compliance with the provisions of the law. “Tax Avoidance” means evading taxes on account of wrong interpretations of tax laws or convenient negligence of the tax laws for earning unwanted benefit, because of which this penalty is imposed. Business should be carried out within the boundaries of tax laws i.e. the football should not go beyond the boundaries of ground. Mistakes do happen in life. The one who makes mistakes and learns from them goes ahead. But mistake should not be made knowingly. A good referee levies penalty as per rules of the game but doesn’t differentiate between players. Tax officers should also behave in a similar manner. The one who follows tax laws diligently should not be scared about penalties because penalties can be appealed. Please remember in following the rules of nature lies the joys of life!
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(Republished with Amendments by Team Taxguru)