Section 270A of Income Tax Act – Penalty for Underreporting & Misreporting

Key highlights
 

1. Section 270A of Income Tax Act prescribes a 50% penalty for under-reporting and a 100–200% penalty for deliberate misreporting of income.
    
2. In some cases, where under-reporting is done by mistake, even the 50% penalty is exempted.  
    
3. If you are given assessment orders, pay the tax + interest, file Form 68 and collect all the proofs within 30 days.

Section 270A of Income Tax Act deals with penalties for under-reporting and misreporting of income in tax returns. The penalty is 50% of the tax payable for under-reporting and 100% to 200% of the tax payable for misreporting.

For example, Ravi declared ₹8,00,000 instead of ₹10,00,000. Let’s calculate his tax using the new regime.

Step 1: Tax on Declared Income (₹8,00,000) = ₹30,000

Step 2 - Tax on Actual Income (₹10,00,000) = ₹50,000

Penalties will be applied as shown in the table given below
 

So, Ravi must pay ₹20,000 additional tax. With a penalty, he owes ₹30,000 (under-reporting) or ₹60,000 (misreporting). 

In this blog, we have discussed this section in detail, from benefits, due dates, exemptions and more.

Importance of Section 270A of Income Tax Act

Section 270A of Income Tax Act is about penalties on under-reporting and misreporting of taxes. It is a 50% penalty in cases of under-reporting, and up to 200% for misreporting. The law was introduced through the Finance Act, 2016, to enhance compliance and prevent tax evasion. The fraud in income tax is so common and so illegal. By setting penalties, people will think twice before committing any fraud. 

Objectives of Section 270A of Income Tax Act

Section 270A of the Income Tax Act was introduced to bring clarity and fairness in tax penalties. It serves two key objectives:

1. Differentiating Mistakes from Fraud

It separates under-reporting (often genuine mistakes) from misreporting (deliberate evasion). That is why it is a 50% penalty for the former and a 200% for the latter. 

2. Rationalizing Penalties
   
   It replaces the old, vague penalty structure with fixed percentage-based penalties. It reduces arbitrariness and provides certainty for taxpayers and officers.

Section 270A of Income Tax Act helps segregate errors from fraud. This simple differentiation gives clarity and fairness in the tax regime.  It also discourages income misreporting.

TDS Rate Under Section 270A of Income Tax Act

Section 270A of the Income Tax Act is not an income tax and has nothing to do with Tax Deducted at Source (TDS). You need to understand that it imposes a penalty, which is a kind of fine, not a tax, so there is no separate “TDS rate” under this section. 

In other words, you don’t deduct or collect tax under 270A. Instead, if under-reporting or misreporting is found, the Income Tax Department add a penalty equal to 50% or 200% of the additional tax owed.

Exemption Conditions Under Section 270A of Income Tax Act

Do you know that the IT Department can impose penalties up to ₹10,00,000 for deliberate non-disclosure of foreign income/assets? 

However, under some conditions, you can be exempted from these penalties. These conditions are given in the table below.
 

We are humans, we make mistakes, and Section 270A of Income Tax Act recognises this. It gives penalty exemption to the honest individuals who, unfortunately, didn’t file the correct income tax return. The exemption is not for those who deliberately misreport. 

For example, Ravi runs a small electronics shop. His books are mostly complete, but the stock valuation is incorrect. The officer recalculates income as shown in the table given below. Let’s see if a penalty is imposed or not. 
 

Since Ravi’s records were mostly correct and the error was genuine, the officer estimated income without penalty.

Due Date and Compliance Requirement

Penalty under Section 270A of Income Tax Act is triggered during an assessment or reassessment process. That is why in this section, we have linked the “due dates” with assessment notices and demands. Here are the key compliance points:
 

You just need to remember that if there is any penalty, try to pay the tax + interest within the next 30 days. In the same time period, file form 68 and keep the records properly.

Step-by-Step Guide to Filing Form 68 & Claiming Penalty Exemption
 

These are the steps that you must follow if you want to claim penalty exemption:
 

1. Check eligibility: Only for under-reporting of income (not misreporting).
    
2. Accept order: Do not file an appeal against the assessment/reassessment order.
    
3. Pay dues: Clear the full tax and interest as per the demand notice.
    
4. File Form 68: Submit within one month from the end of the month in which the order is received.
    
5. Submit to AO: File with the jurisdictional Assessing Officer.
    
6. AO decision: AO must accept/reject within 3 months. Hearing is given before rejection.
    
7. Immunity granted: If accepted, you are free from:
    
   • Penalty under Section 270A (for under-reporting)
      
   • Prosecution under Sections 276C / 276CC

The penalty exemption is not valid for the msreproting cases. If an order is given, you have to pay the amount.

Practical Examples 

In this section, we have given some examples that will make the blog more explanatory in real life. 

Example 1: Under-reporting of Income

Mr. A, a salaried employee, reported ₹8,00,000 income in FY 2024-25. However, he forgot to include his rental income of ₹40,000 per month. Here’s how he was charged:
 

Mr. A must pay ₹₹1,44,000 tax + 72,000 penalty. He should have filed correctly because now he has to pay ₹72,000 extra. 

Example 2: Combined Under-reporting & Misreporting

Mr. Kumar underreported ₹10,00,000 income and falsely claimed ₹4,00,000 as a deduction. This is how Income Tax Department reacted:
 

Mr. Kumar owes ₹2,10,000 tax + ₹ 2,70,000  penalty + interest.

Misreporting is punished more severely than under-reporting.

Conclusion 

Section 270A of Income Tax Act is about introducing strict rules and fairness for under-reporting and misreporting of income. According to this section, a penalty of 50% of the tax due will be applied for under-reporting and 200% for misreporting. 

The penalty rate difference is high because under-reporting can result from honest mistakes, while misreporting is often done deliberately. ‘Gunah ki saza hai galti ki kam!’ In some cases, even the 50% penalty is exempted.

Frequently Asked Questions

Are penalties under Section 270A of Income Tax Act tax-deductible?
No. Penalties under Section 270A of Income Tax Act are not allowed as business expenses under income tax law.

Can company directors be personally penalised under section 270A of Income Tax Act?
Penalties usually apply to the taxpayer entity, but directors may face liability if personal involvement is proven.

Does filing a revised return avoid 270A penalties?
Filing a revised return does not guarantee protection because assessment findings determine if penalties apply.

Can 270A penalties be negotiated or settled?
Penalties may be waived using Section 270AA when tax is paid promptly and no appeal is filed.

What limitation period governs initiating a 270A penalty?
Penalty proceedings start during assessment and follow the normal time limits (30 days) for assessments and reassessments.

Do transfer pricing adjustments attract 270A penalties?
Yes. Transfer pricing adjustments causing under-reporting may attract penalties if misreporting or incorrect documentation is found.

Can criminal prosecution proceed alongside penalties under Section 270A of Income Tax Act?
Criminal prosecution can be started separately, and Section 270A penalties do not block legal proceedings.

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