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Direct Tax Laws and International Taxation · Penalties and Prosecutions

Penalties for Concealment, Misreporting and Other Defaults under Income-tax Act 2025

Updated 11 October 2026 · Fact-checked

Under section 439 of the Income-tax Act, 2025, a person who under-reports income pays a penalty of 50% of the tax on the under-reported income. If the under-reporting results from misreporting, the penalty is 200%. Section 428 adds fixed fees for late returns and for failing to get accounts audited. Identify the default, then apply the rate or fee.

Understand Penalties for Concealment, Misreporting and Other Defaults

Penalty provisions answer one question: what does a taxpayer pay for getting income or compliance wrong? The Income-tax Act, 2025 splits the answer in two. Section 439 deals with wrong income. Section 428 deals with late or missing filings and reports.

Under-reporting is a mismatch between what you declared and what the Competent Authority assessed. For example, the assessed income is greater than the income in the return processed under section 270(1)(a). It also covers cases where no return was filed and income exceeds the maximum amount not chargeable to tax, where reassessed income exceeds earlier assessed income, and where an assessment reduces a loss or turns it into income.

Misreporting is under-reporting with a bad act behind it. Section 439(11) lists these cases: misrepresentation or suppression of facts, failure to record investments in the books, claim of expenditure not substantiated by any evidence, a false entry in the books, failure to record a receipt having a bearing on total income, failure to report an international transaction or specified domestic transaction to which Chapter X applies, and income referred to in section 195(1)(b). The penalty rate jumps from 50% to 200% of tax on the under-reported income.

The penalty is levied by the Competent Authority by a written order. This means the Assessing Officer, Joint Commissioner (Appeals), Commissioner (Appeals), Commissioner or Principal Commissioner. It is payable in addition to tax.

Section 428 works differently. It sets a fee, not a percentage. The fee applies for late return filing, for a return furnished beyond nine months from the end of the tax year, for failing to get accounts audited under section 63, and for failing to furnish an accountant's report required under section 172.

Key rules to remember

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.

How to solve Penalties for Concealment, Misreporting and Other Defaults questions

Use this order for any question on penalties for concealment, misreporting or filing defaults.

  1. 1Name the default. Is it wrong income (section 439) or a late or missing filing, audit or report (section 428)?
  2. 2For wrong income, test for under-reporting: compare assessed income with the return income, the basic exemption limit, earlier assessed income, or the loss claimed.
  3. 3Compute the under-reported income using the correct clause of section 439(3), then remove anything excluded by section 439(8), such as a bona fide explanation with full disclosure.
  4. 4Check whether any misreporting case in section 439(11) applies. If yes, the rate is 200%. Otherwise it is 50%.
  5. 5Compute the tax payable on the under-reported income using section 439(12). Do not use the income itself as the base.
  6. 6Multiply the tax by the rate. Check section 439(13): an addition that already formed the basis of a penalty cannot be penalised again.
  7. 7For fee defaults, pick the clause, then the amount by income level or by length of delay.
  8. 8Write the conclusion: penalty or fee, who imposes it, and that it is in addition to tax.

Quickest way: Rate-first shortcut

When to use it: Use in MCQs and short numerical parts where you must reach a figure in a couple of minutes.

  1. Look for the keywords: suppression, false entry, unrecorded receipt, unsubstantiated expenditure. Any one means 200%, otherwise 50%.
  2. Find the extra tax caused by the under-reported income. If the earlier income was positive, compute tax on the higher income minus tax on the earlier income.
  3. Multiply by the rate and add nothing else, because the penalty is not on income.
  4. For fees, match the clause: return ₹1,000 or ₹5,000, audit ₹75,000 or ₹1,50,000, accountant's report ₹50,000 or ₹1,00,000.

Common mistakes in Penalties for Concealment, Misreporting and Other Defaults

  • Computing penalty as a percentage of the under-reported income.

    The word 'under-reported income' sounds like the base.

    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%.

    Students remember the higher rate and apply it widely.

    Fix: Use 200% only if a case listed in section 439(11) is present. Otherwise use 50%.

  • Ignoring the exclusions in section 439(8).

    Students stop once income is added.

    Fix: Remove amounts with a bona fide explanation and full disclosure of material facts, correct estimates where accounts are complete, and arm's length price additions where documentation and disclosure conditions are met.

  • Confusing a fee with a penalty.

    The old law and everyday talk call all of these penalties.

    Fix: Section 428 uses the word fee, with fixed amounts. Section 439 is a percentage penalty. Use the Act's terms in your answer.

  • Giving the wrong audit fee slab.

    Students mix the audit fee with the accountant's report fee.

    Fix: Audit under section 63: ₹75,000 then ₹1,50,000. Accountant's report under section 172: ₹50,000 then ₹1,00,000.

  • Using the total income test for the wrong filing fee.

    Students apply the ₹5,00,000 test to audit defaults.

    Fix: The ₹1,000 or ₹5,000 split applies only to return defaults in section 428(a) and (b).

Worked examples

Example 1

Ravi Menon filed his return for the tax year, and the income determined under section 270(1)(a) was ₹12,00,000. The Assessing Officer assessed income at ₹15,00,000 after disallowing an expense that Ravi could not substantiate with any evidence. Assume tax on ₹15,00,000 is ₹2,10,000 and tax on ₹12,00,000 is ₹1,20,000. Compute the penalty.

Show the solution
  1. Under-reported income = ₹15,00,000 − ₹12,00,000 = ₹3,00,000.
  2. The claim of expenditure was not substantiated by any evidence. This is a misreporting case under section 439(11)(c), so the rate is 200%.
  3. Tax payable on under-reported income = X − Y = ₹2,10,000 − ₹1,20,000 = ₹90,000.
  4. Penalty = 200% × ₹90,000 = ₹1,80,000.

Answer: Penalty under section 439(10) is ₹1,80,000, payable in addition to tax.

Example 2

Sunrise Traders Pvt. Ltd. is required to get its accounts audited under section 63 for the tax year. It got the audit done and furnished the report one month and 10 days late. Separately, Anita Rao, whose total income is ₹4,20,000, filed her return after the due date but within nine months of the end of the tax year. State the fee for each.

Show the solution
  1. Sunrise's failure continued beyond one month, so the second slab in section 428(c)(ii) applies.
  2. Fee for Sunrise = ₹1,50,000.
  3. Anita failed to file by the due date under section 263(1). Section 428(a) applies.
  4. Her total income ₹4,20,000 does not exceed ₹5,00,000, so the fee is ₹1,000.

Answer: Sunrise Traders: ₹1,50,000 under section 428(c)(ii). Anita Rao: ₹1,000 under section 428(a)(i).

Exam tips

  • 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.
  • Quote the Act by name: Income-tax Act, 2025, and state the tax year. Do not cite the 1961 Act sections.
  • In case answers, check for a bona fide explanation with full disclosure. It can remove the penalty on that amount.

Practice questions from Penalties and Prosecutions

Penalties for Concealment, Misreporting and Other Defaults: frequently asked questions

What is the difference between under-reporting and misreporting of income?

Under-reporting is a shortfall of reported income against assessed income, for example the assessed income exceeds the return income. Misreporting is under-reporting caused by acts such as suppression of facts, false entries or unrecorded receipts. The penalty is 50% for under-reporting and 200% for misreporting, on the tax payable.

What is the penalty for failure to get accounts audited under the Income-tax Act, 2025?

Section 428(c) charges a fee of ₹75,000 for a delay up to one month and ₹1,50,000 thereafter. It applies where you fail to get accounts audited and furnish the report as required under section 63.

What is the fee for failing to furnish a return of income?

Under section 428(a), it is ₹1,000 if total income does not exceed ₹5,00,000, and ₹5,000 in any other case. The same amounts apply under section 428(b) if the return is furnished beyond nine months from the end of the tax year.

Can the same addition be penalised twice?

No. Section 439(13) says an addition or disallowance that has already formed the basis of a penalty, in the same or any other tax year, cannot be the basis of a penalty again.