Tax mistakes can have severe financial consequences, from hefty penalties and lost refunds to legal action. As the Income Tax Return (ITR) filing deadline approaches, experts are emphasizing the critical importance of accurate income reporting to avoid these risks.
What’s the Difference Between Underreporting and Misreporting?
- Underreporting is declaring less than your actual income. This could be an oversight, such as forgetting to include interest from a savings account, but it can still lead to penalties.
- Misreporting is a more serious offense involving intentional deceit. This includes falsifying records, making false claims for deductions, or hiding income sources to reduce your tax liability.
Why Does It Matter?
According to tax experts like CA Shefali Mundra of ClearTax, “Accurate income reporting is not just a compliance requirement—it’s essential to avoid serious financial, legal, and reputational risks.”
The Income Tax Department is increasingly using data from sources like the Annual Information Statement (AIS) and Form 26AS to detect mismatches between what taxpayers declare and what the department knows about their income and transactions.
The Financial and Legal Repercussions
- Hefty Penalties:
- Underreporting: A penalty of 50% of the tax due on the underreported income.
- Deliberate Misreporting: A much steeper penalty of up to 200% of the tax payable.
- Interest Charges: Sections 234A, 234B, and 234C of the Income Tax Act impose interest on delayed filings, non-payment, or short payment of tax. This interest accrues until all dues are cleared.
- Loss of Benefits: Misreporting can lead to the denial of legitimate tax exemptions and deductions.
- Prosecution and Jail: In severe cases of tax evasion, you could face prosecution, fines, or even imprisonment.
Tax professionals stress that your ITR is a legal document. Errors or misrepresentations can haunt you for years, impacting your refunds, financial health, and overall compliance record. To avoid these issues, ensure all income sources are accurately declared and cross-verify your information with the data available to the tax department.