Penalties and Prosecutions: formula sheet

Key formulas

Cap on penalty for tax in default

Total penalty under section 412(1) ≤ tax in arrears

The Assessing Officer directs the amount, and further amounts for a continuing default. The total cannot exceed the arrears.

Conditions before levy under section 412

Hearing given AND no good and sufficient reason proved

No penalty if the assessee was not given a reasonable opportunity of being heard, or proves to the Assessing Officer that the default was for good and sufficient reasons.

Payment does not remove penalty

Tax paid before levy ≠ penalty escaped

Section 412(4): the assessee remains liable even if he has paid the tax before the penalty is levied.

Cancellation on reduction of tax

Tax wholly reduced by final order ⇒ penalty cancelled and refunded

Section 412(5). It applies where the tax whose default led to the penalty is wholly reduced.

Waiver for voluntary disclosure (section 469(1))

Waiver of section 439 penalty if: disclosure before detection + cooperation + tax and interest paid or arranged

Discretion of the Principal Commissioner or Commissioner. Disclosure must be full, true, voluntary and in good faith.

Approval limits in section 469

Section 469(3): income exceeds ₹5,00,000 → prior approval. Section 469(6): penalties reduced or waived exceed ₹1,00,000 → prior approval

Approval is from the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General, as the case may be.

Genuine hardship relief (section 469(5))

Application + recorded reasons + genuine hardship + cooperation

Order within twelve months from the end of the month of receipt of the application (section 469(7)). Hearing is needed before rejection (section 469(8)).

Recovery (section 419)

Penalty, fine, interest or other sum recovered as arrears of tax

Uses the recovery machinery in the Part dealing with recovery of arrears of tax.

Penalty for under-reporting

Penalty = 50% × tax payable on under-reported income

Section 439(9). Payable in addition to tax.

Penalty for misreporting

Penalty = 200% × tax payable on under-reported income

Section 439(10). Applies where under-reporting is a consequence of misreporting, whatever sub-sections (8) or (9) say.

Tax on under-reported income: first assessment, no return or first return under section 280

Tax on (under-reported income + maximum amount not chargeable to tax), treated as total income

Section 439(12)(a).

Tax on under-reported income: income earlier determined is a loss

Tax on under-reported income as if it were total income

Section 439(12)(b).

Tax on under-reported income: any other case

X − Y, where X = tax on (under-reported income + total income earlier determined or assessed) and Y = tax on the earlier total income

Section 439(12)(c). It is the extra tax caused by the under-reported income.

Under-reported income when return filed and income assessed first time

Income assessed − income determined under section 270(1)(a)

Section 439(3)(a)(i). If no return, a company, firm or local authority uses full assessed income; others use assessed income minus maximum amount not chargeable to tax.

Fee for default in filing return (section 428(a) and (b))

₹1,000 if total income ≤ ₹5,00,000; ₹5,000 in any other case

Applies to failure to file by the due date under section 263(1), and to filing under section 263(5) beyond nine months from the end of the tax year.

Fee for failure to get accounts audited (section 428(c))

₹75,000 for delay up to one month; ₹1,50,000 thereafter

For failure to get accounts audited and furnish the audit report required under section 63.

Fee for failure to furnish accountant's report (section 428(d))

₹50,000 for delay up to one month; ₹1,00,000 thereafter

For the report required under section 172.

Section 297 rule

Block period undisclosed income → no interest under s.423/424/425 and no penalty under s.439

Applies only to undisclosed income assessed or reassessed for the block period.

Reasonable cause (s.470)

Failure under listed sections + proof of reasonable cause → no penalty

The assessee must prove it. Section 439 is not in the list.

Waiver for voluntary disclosure (s.469(1))

Disclosure before detection + cooperation + tax/interest paid or arranged → reduction or waiver of s.439 penalty

Discretion of the Principal Commissioner or Commissioner. Both limbs (a) and (b) must be met.

Approval threshold under s.469(3)

Income involved (aggregate if many years) > ₹5,00,000 → prior approval of higher authority

Higher authority: Principal Chief Commissioner, Chief Commissioner, Principal Director General or Director General.

Hardship relief under s.469(5)-(6)

Application + genuine hardship + cooperation → reduce, waive, stay or compound; aggregate > ₹1,00,000 → prior approval

Order within 12 months from the end of the month of receipt of the application. No rejection without a hearing.

Immunity under s.440

Tax + interest paid; additional tax 100% (s.439(11)(a)-(f)) or 120% (s.439(11)(g)) of tax on under-reported income paid; no appeal → waiver and immunity

Apply within one month from the end of the month of receiving the order. The Assessing Officer decides within three months from the end of the month of receipt.

Tax in default (s.412)

Total penalty ≤ tax in arrears; no penalty if default was for good and sufficient reasons

A hearing is required. Paying the tax later does not by itself remove liability for penalty.

Section 478(1) and (2): offence

Wilful attempt to evade tax, penalty or interest (or its payment), or under-reporting income (sub-section 1 only) = offence

Intent (wilfulness) is essential. Sub-section (1) covers evasion of tax chargeable and under-reporting; sub-section (2) covers evasion of payment.

Punishment: amount above ₹50 lakh

Simple imprisonment up to 2 years, or fine, or both

Amount sought to be evaded, or tax on under-reported income, exceeds ₹50,00,000.

Punishment: above ₹10 lakh up to ₹50 lakh

Simple imprisonment up to 6 months, or fine, or both

Amount exceeds ₹10,00,000 but does not exceed ₹50,00,000.

Punishment: any other case

Fine only

Amount of ₹10 lakh or less. No imprisonment.

Section 478(3): penalty and prosecution together

Punishment under section 478 is without prejudice to any penalty under the Act

Both can be imposed for the same default.

Section 478(4): deemed wilful attempt

False entry held/made, wilful omission, or any circumstance enabling evasion

Applies to books or documents relevant to a proceeding under the Act.

Section 519: immunity

Central Government may tender immunity from prosecution and penalty for full and true disclosure

Reasons recorded in writing; withdrawn if conditions are breached, concealment or false evidence; person can then be tried and penalised.

Sections 465 and 468: fixed penalties

₹10,000 per default (465(1), 468); ₹500 per day (465(2))

These are penalties, not prosecutions. Section 468: Assessing Officer may impose ₹10,000 for failure under section 397 or quoting a false TAN.

Core rule of Section 419

Interest / fine / penalty / any other sum payable under the Act → recoverable as arrears of tax

Recovery follows the manner provided in this Part for recovery of arrears of tax.

Section 421: other modes preserved

Recovery modes in the Part ≠ exclusive; other laws on Government debts and a suit remain available

Government can use them even while recovering by a mode in the Part.

Section 412: penalty for tax in default

Total penalty under s.412(1) ≤ tax in arrears

No penalty without a reasonable hearing, or where default was for good and sufficient reasons. Paying the tax later does not remove liability.

Section 422: non-resident

Arrears of non-resident → recoverable by deduction under Chapter XIX-B and from any assets which are or may come within India

Applies to tax on income referred to in section 9(2), irrespective of section 304(1) or (5).

Power to publish (s. 512(1))

Public interest (necessary or expedient) → Central Government may publish names + particulars of proceedings/prosecutions

The opinion is that of the Central Government, and the manner of publication is as it thinks fit.

Penalty condition (s. 512(2))

Publish only after: appeal time under s. 356 or 357 expired with no appeal, OR appeal filed and disposed of

Applies to publication for a penalty imposed under the Act.

Persons behind the entity (s. 512(3))

Partners, directors, managing agents, secretaries and treasurers, managers, or association members may also be named

Only if, in the Central Government's opinion, the circumstances justify it.

Quick revision

• Section 297: no interest under section 423, 424 or 425 and no penalty under section 439 on undisclosed income assessed or reassessed for the block period.
• Section 419: penalties, fine, interest and other sums are recoverable in the same manner as arrears of tax.
• Section 512: the Central Government may publish names and particulars if it considers it necessary or expedient in the public interest.
• Section 512(2): no publication for a penalty until the appeal time has expired with no appeal filed, or any appeal filed has been disposed of.
• Section 512(3): names of partners, directors, managers and similar persons may also be published if the circumstances justify it.
• Section 475: fraudulent removal or transfer of property to prevent recovery is punishable with simple imprisonment up to two years and with fine.
• Section 424: interest is 1% simple for every month or part of a month, if advance tax is not paid or is less than 90% of assessed tax.
• Section 469(1): Commissioner may reduce or waive penalty under section 439 if there was full and true disclosure before detection, cooperation, and payment or satisfactory arrangement for tax and interest.
• Section 469(3): prior approval of the higher authority is needed if the income involved exceeds Rs. 5,00,000.
• Section 469(5) and (6): hardship relief on application; prior approval if penalties reduced, waived or compounded exceed Rs. 1,00,000.
• Section 469(7): order on a hardship application within twelve months from the end of the month of receipt; rejection needs a hearing.
• Section 469(4) and (9): relief under an order bars further relief for other tax years; orders are final.

Common mistakes

• Treating penalty, interest and fine as the same thing. Fix: Remember: interest compensates for delay, penalty punishes a default through a departmental order, fine is imposed by a court on conviction.
• Saying that payment of tax before levy removes the penalty. Fix: Quote section 412(4): the assessee remains liable even if the tax was paid before the penalty was levied.
• Computing penalty as a percentage of the under-reported income. Fix: The base is the tax payable on under-reported income, worked out under section 439(12).
• Treating every under-reporting case as misreporting at 200%. Fix: Use 200% only if a case listed in section 439(11) is present. Otherwise use 50%.
• Applying section 297 to every penalty or interest. Fix: Remember that it covers only undisclosed income assessed or reassessed for the block period and only interest under 423/424/425 and penalty under 439.
• Claiming reasonable cause under section 470 for a section 439 penalty. Fix: Section 470 lists the penalty sections. Section 439 is not among them. Use sections 469 or 440 for section 439.
• Using the old slabs of ₹25 lakh and rigorous imprisonment of up to seven years. Fix: For June 2027, use the current text: ₹50 lakh and ₹10 lakh thresholds, simple imprisonment up to two years or six months, with fine as an alternative.
• Applying the slab to the income concealed instead of the tax. Fix: The test is the amount of tax sought to be evaded, or the tax on under-reported income. Compute the tax first.
• Saying Section 419 creates the power to levy penalty. Fix: State that levy comes from other provisions. Section 419 only governs recovery.
• Thinking interest and penalty need a separate recovery procedure. Fix: Write that they are recovered in the manner provided for arrears of tax.

Exam tips

• Write the section number only for provisions you are sure of. Section 412 (tax in default), 419 (recovery) and 469 (waiver) are safe from this topic.
• Always add the hearing and good-and-sufficient-reason points in a case answer. They carry marks.
• In MCQs, check the exact limits: cap is the arrears of tax, approval limits are ₹5,00,000 and ₹1,00,000 under section 469, and both are 'exceeds'.
• For a penalty vs prosecution question, give three points: authority, nature (civil or criminal), and consequence.
• End with a clear conclusion on whether a penalty applies, and the maximum amount.
• In MCQs, scan the facts for a section 439(11) trigger word. It decides between 50% and 200%.
• Show the tax calculation under section 439(12) as a separate line. Marks are given for the base.
• Memorise the six fee figures in section 428 as three pairs. Questions often test the pair swap.