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Penalty for misreporting

23 March 2018

Dear Sir/Madam,

I have purchased shares offline of a limited company, but sold on online and money received through bank. The period of holding is 1year 6months actually it is LTCG and is exempted from taxability. But in the same scenario another person filed return and he got notice from Income Tax Department.

(i) Should i show it as STCG or LTCG ?

(ii) What if i show it as STCG and pay tax on it?

(iii) Is there any other way to get exemption from taxation

Thank You

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5 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160860 Points)
Replied 23 March 2018

1. First of all it is not exempted as STT not paid while purchasing.

2. Question of offline purchase, if by cash may be questioned..

3. Show it as LTCG, but taxable at 20% + cess........

Saikrishna Reddy S (57 Points)
Replied 23 March 2018

Thank you for your quick reply sir

Whai if I show it as STCG is there any penalty for such misreporting.

Thank you

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160860 Points)
Replied 23 March 2018

Section 270A

According to the Finance Bill 2016, a new section 270A was inserted in the Income-tax Act, 1961, and will be effective from assessment year 2017-18. The Act now provides that an assessing officer (AO), a commissioner (appeals), a principal commissioner or a commissioner may direct that any person who has under-reported or misreported income shall be liable to pay penalty in addition to the tax, if any, on such income.

Under-reporting

There are various circumstances under which a person can be considered as having under-reported the income. For instance, if someone does not file a return, but her income was taxable (i.e., more than Rs2.5 lakh for individuals, Rs3 lakh for senior citizens and Rs5 lakh for very senior citizens), then it will be considered as a case of under-reporting. Another scenario is when the return is filed but upon assessment the department finds that the income of the assessee is more than what was declared in the return.

This could happen if the assessee failed to take into consideration certain incomes such as interest income and capitals gains.

Misreporting

This happens in case of misrepresentation or suppression of facts, and includes: failure to record investments in the books of account, claims of expenditure not substantiated by any evidence, recording of any false entry in the books of account, failure to record any receipt in books of account having a bearing on total income, failure to report any international transaction or any transaction deemed to be an international transaction or any of the specified domestic transactions.

Rate of penalty

Under section 270A, under-reporting of income can attract a penalty of up to 50% of the tax payable on under-reported income. On the other hand, in case of misreporting, the penalty can be as high as 200% of the tax payable on the misreported income.

For instance, if you are in 30% tax bracket and under-report an income of Rs1 lakh in your returns, upon assessment, the assessing officer can impose a penalty of up to about Rs15,000 (50% of the tax on under-reported income, i.e., Rs30,000). If the misreported income is Rs1 lakh, the penalty can be up to 200% of the tax on unreported income. Remember, penalty is over and above the tax you have to pay.