Can penalty be initiated for unpaid declared tax in ITR

Following two section needs to be referred simultaneously, in order to understand the penalty amount in case of non-payment of whole or part of self-assessment tax or interest or fees –

1. Section 140A (3) of the Income Tax Act; and

2. Section 221 (1) of the Income Tax Act

As per section 140A (3), in case the taxpayer defaults in making payment of the whole or part of self-assessment tax or interest or fees, then, such taxpayer shall be ‘deemed to be an assessee in default’ to the extent of the unpaid tax or interest or fee.

Section 221 (1) levies penalty under the case when the taxpayer is ‘deemed to be an assessee in default’. As per said section, the penalty in such case would be an amount as directed by the Assessing Officer (AO). However, the maximum amount of penalty cannot exceed the amount of tax in arrears.

So the maximum penalty can be 100% of unpaid tax amount.