Penalty payable
when tax in default.
412(1)
When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under section 411(3), be liable, by way of penalty, to pay—
- (a) such amount as the Assessing Officer may direct; and
- (b) in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct.
412(2)
The total amount of penalty under sub-section (1) shall not exceed the amount of tax in arrears.
412(3)
No penalty under sub-section (1) shall be levied—
- (a) unless the assessee has been given a reasonable opportunity of being heard; and
- (b) where the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons.
412(4)
The assessee shall not cease to be liable to any penalty under sub-section (1) merely by reason of the fact that before the levy of such penalty he has paid the tax.
412(5)
Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded.
Section Summary:
Section 412 of the new income tax law deals with penalties imposed on taxpayers who fail to pay their taxes on time. If a taxpayer defaults on their tax payment, they may be required to pay a penalty in addition to the outstanding tax amount and interest. The penalty is determined by the Assessing Officer and can increase if the default continues. However, there are safeguards to ensure fairness, such as providing the taxpayer an opportunity to explain their default and limiting the penalty to the amount of tax in arrears.
Key Changes:
- Penalty Structure: The section introduces a penalty for tax defaults, which can be imposed in addition to interest under Section 411(3). This is a continuation of the penalty provisions under the previous tax law but with clearer guidelines.
- Continuing Defaults: The penalty can increase for ongoing defaults, with the Assessing Officer having the authority to impose additional amounts over time.
- Safeguards: The taxpayer must be given a reasonable opportunity to be heard before the penalty is levied. Additionally, the penalty can be waived if the taxpayer proves the default was due to valid reasons.
- Refund of Penalty: If the tax amount is later reduced or eliminated due to a final order, the penalty is canceled, and any penalty paid is refunded.
Practical Implications:
- For Taxpayers: Taxpayers who fail to pay their taxes on time may face significant financial consequences, including penalties that can accumulate over time. However, they have the right to present their case and avoid penalties if they can prove the default was due to valid reasons.
- For Businesses: Businesses must ensure timely tax payments to avoid penalties, especially since continuing defaults can lead to higher penalties.
- For Assessing Officers: The section provides clear authority to impose penalties but also requires them to follow due process, such as giving the taxpayer a chance to explain their default.
Critical Concepts:
- Assessee in Default: A taxpayer is considered in default if they fail to pay the tax amount by the due date.
- Continuing Default: If the taxpayer continues to delay payment after the initial default, the penalty can increase over time.
- Good and Sufficient Reasons: The taxpayer can avoid penalties if they can prove that the default was due to valid reasons, such as financial hardship or unforeseen circumstances.
- Final Order: If a higher authority (e.g., appellate tribunal) reduces or eliminates the tax liability, the penalty is canceled, and any penalty paid is refunded.
Compliance Steps:
- Timely Payment: Ensure taxes are paid by the due date to avoid penalties.
- Documentation: Maintain records of tax payments and any communications with tax authorities.
- Respond to Notices: If a penalty notice is received, respond promptly and provide evidence if the default was due to valid reasons.
- Monitor Final Orders: If the tax liability is reduced or eliminated after a final order, ensure the penalty is canceled and any penalty paid is refunded.
Examples:
- Scenario 1: A taxpayer fails to pay ₹1,00,000 in taxes by the due date. The Assessing Officer imposes a penalty of ₹10,000. If the taxpayer continues to delay payment, the Assessing Officer may impose an additional penalty of ₹5,000 after 30 days.
- Scenario 2: A taxpayer defaults on tax payment due to a medical emergency. They provide evidence to the Assessing Officer, who waives the penalty after being satisfied with the explanation.
- Scenario 3: A taxpayer pays a penalty of ₹20,000 for a tax default. Later, an appellate tribunal reduces the tax liability to zero. The penalty is canceled, and the taxpayer receives a refund of ₹20,000.
This section ensures accountability while providing safeguards to protect taxpayers from unfair penalties.