A mistake in your income tax return () does not automatically mean you will face a penalty of 200% of the tax involved. The consequences depend on the nature of the discrepancy and the circumstances of the case.
Under the Income-tax Act, 2025, which came into force on 1 April 2026, the penalty for under-reporting income is 50% of the tax payable on the under-reported income. If the under-reporting results from misreporting, the penalty rises to 200% of that tax. Here’s what need to know.
When does an ITR error attract 200% penalty?
The distinction lies in the circumstances behind the discrepancy. Under-reporting occurs when the income assessed is higher than the income reported in the return or previously assessed. It can also apply when an assessment reduces a reported loss or converts it into income.
However, certain cases are excluded, such as when a taxpayer provides a genuine explanation and discloses all relevant facts to support it.
Misreporting refers to specified cases of inaccurate or incomplete income reporting. These include misrepresenting or suppressing facts, failing to record investments or income receipts in account books, claiming expenses without supporting evidence, and making false entries in the books of account.
How is the penalty calculated?
- Under-reporting: The penalty is 50% of the tax payable on the under-reported income. For example, if the tax attributable to the under-reported income is ₹1 lakh, the penalty would be ₹50,000.
- Misreporting: The penalty is 200% of the tax payable on the under-reported income. If the tax attributable to the misreported income is ₹1 lakh, the penalty would be ₹2 lakh.
These penalties are over and above the tax payable. These tax amounts have been determined according to Section 439 of the Income-tax Act, 2025.
How does late ITR filing attract a penalty?
Late filing and under-reporting or misreporting are different defaults. For Tax Year 2026-27, Section 428 of the Income-tax Act, 2025 provides for a late-filing fee of ₹1,000 if total income does not exceed ₹5 lakh in a year and ₹5,000 in other cases. Interest may also apply where tax remains unpaid.
Under the applicable provisions, interest for delayed filing is calculated at 1% per month or part of a month on the relevant unpaid tax liability.
A late does not, by itself, establish that income was misreported. Equally, filing on time does not protect a taxpayer from a penalty if the return contains under-reported income that meets the legal conditions.
Disclaimer: This is for informational purposes only. Please visit the official website for the latest updates and consult a tax expert.