What happens if you live in India and don't pay taxes? You should know this

Tax Evasion / What happens if you live in India and don't pay taxes? You should know this

Tax Evasion - What happens if you live in India and don't pay taxes? You should know this

Tax Evasion: If you live in India and are earning income, it is your legal and moral obligation to pay tax. Whether you are doing business or in a job, if your income comes under the tax net, it is mandatory for you to pay income tax. Paying tax strengthens the country's economic structure and provides funding to many schemes run by the government.

Paying tax has many benefits. For example, people who pay taxes regularly get priority in loans, credit cards and other financial services. On the contrary, not paying taxes can lead to legal action. Taxpayers in India get the option to choose from two types of income tax regimes — Old Tax Regime and New Tax Regime — according to their needs. Let's know what punitive actions you may face if you do not pay taxes.

Possible legal action for not paying tax

1. Penalty for filing income tax return late (Section 234F)

If you do not file income tax return within the stipulated time limit, the Income Tax Department can impose a penalty on you.

If your total income is more than ₹5 lakh, the amount of penalty can be up to ₹5,000.

If your income is less than ₹5 lakh, this penalty is limited to ₹1,000. Apart from this, interest at the rate of 1% per month can also be charged for delay in filing return under Section 234A.

2. Receiving notice from Income Tax Department (Section 156)

If you do not pay tax, the Income Tax Department can send you a demand notice under Section 156. This notice contains instructions to pay the outstanding amount within a stipulated time limit. If you ignore this notice, the Income Tax Department can take legal action against you.

3. Penalties and fines for tax evasion (Section 270A, 276CC)

Tax evasion is a serious offence. If you intentionally under-report your income or provide incorrect information, you may face stringent penalties.

Under Section 270A, a penalty of 50% to 200% of the under-reported tax can be imposed.

Under Section 276CC, severe cases of tax evasion can attract imprisonment ranging from three months to seven years.

4. Confiscation of property and assets

If you repeatedly ignore tax payment notices, the Income Tax Department can confiscate your assets. This may include your movable and immovable assets such as house, land, vehicle, etc. The department can recover the outstanding tax by auctioning the confiscated assets.

5. Financial reputation and travel ban

Non-payment of tax has a negative impact on your financial reputation. Banks and other financial institutions may refuse to grant you loans and credit cards considering your credit score.

In some cases, the Ministry of External Affairs may refuse to renew your passport or issue a new passport. This may lead to a ban on international travel.

6. Court hearing and imprisonment

In serious cases of tax evasion, you may be prosecuted in court. If the court finds you guilty, you may be sentenced to jail along with paying a hefty fine. The punishment in cases of tax evasion can range from three months to seven years, depending on the severity of the crime.

Benefits of tax payment

Legal protection: Paying taxes on time can help you avoid legal penalties and fines.

Improved credit score: Paying taxes regularly improves your credit score, making it easier to avail loans and other financial services in the future.

Benefits of government schemes: Taxpayers get the benefit of many government schemes and services on a priority basis.

Tips to avoid tax evasion

File returns on time: File income tax returns on time to avoid any kind of penalty.

Provide correct information: Provide correct information about your income and investments to the Income Tax Department. Providing incorrect information may lead to legal action.

Take help of a CA or financial advisor: Take help of a chartered accountant or financial advisor for correct calculation of tax and timely payment.

Conclusion

Paying tax is the duty of every citizen in India. It not only contributes to the progress of the country but also provides you legal and financial security. Not paying tax can lead to various types of legal actions, including fines, property confiscation, and even jail sentence. So, pay tax on time and be a responsible citizen of the country.