Offences relating to Finance

30 Jun 2022




The blog introduces andelaborates upon all offenses relating to accounting, taxation, Insurance, andother offenses related to finance. The blog also analysis offenses arising outof GST, the distribution of state and central GST and the penalties relating tothe same.






Thebackbone of a developing economy is majorly dependent on the financial systemadopted by an economy that endows the governing system of generating revenuesand allocating resources in an economy. The major revenues of the governmentare earned through various taxes imposed by the government on an individual aswell as firms. Today in this digital era financial frauds have become the majordeterrent for the growth of an economy. Tax-evasion, Tax-avoidance, GST-frauds,Benami Transactions, Insurance fraud, Unlawful way of raising money, Ponzischemes and much more are adding it as the hindrance to the proper governanceof revenue policies introduced by the government. Some of the common offenseswhich are generally practiced by the corporate and individuals are as follows:-

1.     TaxEvasion: -

Taxplanning involves the full utilization of tax deductions, exemptions, oradjustments to income, expenses, grants, and rebates to reduce the tax debtduring the financial year. Examples of deductions are Section 80C investmentsof Income Tax Act, such as the Public Provident Fund (PPF), the NationalPension Scheme (NPS), etc. Similarly, the Income Tax Act allows for theexemption of other benefits such as Housing Rent Allowance (HRA) and LeaveTravel Allowance (LTA).

Avoidingtaxation is illegal and Chapter XXII of the Income Tax Act, 1961, is clearabout penalties. A few examples of tax evasion are, a person, or a company thatdeliberately avoids paying tax debt, poor revenue reporting, and deliberate taxevasion attempts are tax evasion situations.

·        CommonMethods and its penalties That is being practice to evade tax are as follows:

1.     Smugglinginstead of paying state border tax, import tax, etc.

To avoid paying taxes, exportduties, and property taxes, many people and businesses are turning tosmuggling. Trafficking is a punishable act under Indian law, and evading taxescan lead to severe penalties.

2.     Filingincorrect tax Return

Posting incorrect informationsuch as overcharging, overcharging, or any other form of false reporting is apopular tax avoidance strategy. However, this is illegal.

3.     Maintainingfake financial statements

Incorrect financial documentssuch as balance sheets and account books may provide an idea of ​​a lowerannual income. Some businesses also do not keep sales receipts to review theirincome and reduce their taxes for a year. And to maintain the original recordsRojmel and digitized formats is being used which is only accessible to anindividuals who are maintaining it and therefore it is getting tougher toexamine original financial records of an individuals for the tax authorities.

4.     Usingfake documents to deduct the tax

Another tax evasion strategy isto obtain fake tax credentials, such as a disability certificate in order toclaim a tax deduction under Section 80U of Income Tax Act.

5.     Notshowing any income or showing less income

Many people turn to moneytrading to cover their earnings. Lack of paper income means you do not have topay any tax. Businesses often do not produce invoices for their sales.Similarly, landlords may accept cash payments only in lieu of bank transfers orrental cheques.

6.     Keepingmoney outside India

International bank accounts arenot under the Indian tax department. Some people may keep a bank account abroadto save money.

7.     HawalaTransactions

Hawala is an informal method oftransferring money without any physical money actually moving in official way.Hawala system is only based on “Trust”. Hawala is used as an alternativeremittance channel that exist outside traditional banking system. In order tohide transaction history from the bank people opt for hawala method for thepayment.



1.     Failingto file your Income tax return within Due Time

In terms of subsection (1) ofSection 139 of the Income Tax Act of 1961, all taxpayers must complete theirincome tax returns at the time of taxing each financial year. If anyone doesnot file a tax return for any reason, he or she should pay late with interestand penalty. The latest payment was Rs10,000 up to the 2019-20 financial year.However, from 2020-21, anyone who files a limited tax rate is charged Rs5,000as a fine. In some cases, the inspecting officer may also determine the amountof the penalty, which may be less than or more than Rs5,000.

2.     Providingincorrect PAN card number or hiding the pan card number

Failure to provide accurateinformation while completing the ITR is also a punishable offense. Manyemployers request employees' PAN card numbers at the time of hiring. Thisinformation is used when deducting TDS or source tax deductions from employeeincome. Here is a fine for two cases involving a PAN card Hiding the PAN cardnumber: If there is no PAN card number, the employer will deduct 20% TDSinstead of 10% TDS.

Giving the wrong PANcredentials: In case the wrong PAN card number, one will have to pay a fine ofRs 10,000. A taxpayer may not provide accurate information on Income TaxReturns to the authorities. In addition, testing may determine the accuracy ofthe information provided after it has been submitted. However, it is possiblethat the test will not be able to fix it within ten days of delivery.Otherwise, the inspector may be aware of an error during the submission processbut fail to notify the Tax Department. The amount of the fine in such cases isRs50,000.

3.     Concealingor misreporting your income :

In terms of Section 271 (C) ofthe Income Tax Act of 1961, if you conceal or disregard income, the penalty maybe anywhere between 100% to 300% of the required taxable amount. Here is howthe percentage is determined: A 10% penalty for hidden or undisclosed revenuefor the previous year is levied if the taxpayer owns the undisclosed and statedincome. Interest may also be charged here. This refers to an actual error thatwas not made in order to avoid tax evasion. A 300% penalty for hidden orundisclosed revenue is obtained if the error is intentional in order to avoidtaxation. This is also known as a malafide error. Income tax officials may feelcompelled to raid the area to get an undisclosed taxpayer's salary.Accordingly, the penalty will be calculated in terms of Section 271AAB in suchcases.

4.     Non-Compliance with TDS regulations

For businesses or employers whodraw and collect taxes from a source, having a Tax Deduction Account (TAN)number is essential. Not having TAN can lead to a penalty of Rs 10,000. Thereare two types of fraud that can be committed here:

Non-tax collection: In thiscase, the penalty is the same as the tax that was not deducted from the source.

Failure to complete TDS refund:As income tax return, there is also a deadline to complete TDS forms.

If the TDS refund is notcompleted within the stipulated time, the taxpayer must pay the daily tax afterthe required tax until all payments have been made. The fine, in this case, canstart from Rs10,000 and go up to Rs1, 00,000. To avoid paying this fine,taxpayers must complete TDS refunds before the due date.

5.     Failureto comply with demand Notice

The Department of Income Tax(IT) may issue a notice of need if the dispute arises in the income tax return.When this happens, the IT department issues the required notice stating theamount of tax still owed. Taxpayer is given 30 days to respond to notice ofneed from the date of receipt of the document. Failure to respond and pay duetax may result in penalties.

6.     NotPaying tax as per self-assessment

Taxpayers who fail to pay all orpart of their self-assessment or interest rates are considered automatictaxpayers. Failure to pay tax as self-assessment is considered tax fraud underSection 140A (1). In such a case, the inspecting officer may charge a fine upto the full amount owed by the government. However, if there is a valid reasonfor not paying the tax such as self-examination, the inspecting authority maywaive the fine.

7.     NotGetting Audited

If an organization does not finditself audited or does not submit a research report under Section 44AB, it mustpay a fine of Rs 1.5 lakhs or 0.5% of its sales revenue, whichever is higher.In addition, if a taxpayer does not submit a report from the trustees asprescribed under Section 92E, he or she must pay a fine of at least Rs 1 lakhor more. To avoid penalties, the taxpayer must keep a record of alltransactions at home and abroad and obtain a report from a chartered accountantin India before or after the deadline. In addition, a 2% penalty for thetransaction amount (international or domestic) will apply if any documentsrequired by this Act are not provided or attached under Section 92 (D) 3.

It should be emphasized that theinspecting officer is not required to impose a fine in all cases where there isan offense. The inspector may have encountered difficulties due tocircumstances beyond his control. For example, an auditor may not be able toperform normal business functions, such as keeping account books due todifficulties. In addition, natural disasters such as hurricanes, floods, andother natural disasters may have contributed to the crisis. In such cases, theinspecting officer has the authority to exclude the inspector from criminalpenalties under the Act. However, the inspecting officer must write down thebasis for granting the Examiner the benefit of a written exemption. 

GSTRelated Offences


GST isknown as Goods and Service Tax. It is an indirect Tax which has replaced manyindirect taxes in India such as VAT (Value added Tax), Service Tax etc.., TheGoods and Service Tax Act was passed in the parliament on 29th march2017 and came into effect on 1st July 2017. GST is levied uponsupply of goods and service. As such Goods and Service Tax in India wascomprehensive, multi stage, destination-based tax that is levied on every valueaddition, and GST replaced it by getting the status of single indirect tax lawfor the entire country.

GST wasintroduced because there was no unified and centralized tax on both Goods andServices. Further more to this under GST all the major indirect tax wassubsumed into one. Henceforth, GST has reduced the compliance burden on taxpayers and eased tax administration for the Government.

1.     Fakeor wrong invoices:

When an taxable person suppliesany goods/service without any invoice or issues a false invoice.

2.     Issuanceof bill without the supply of goods or services

Anyone issues a bill without thetransaction of supply of goods or services just to manipulate the balance sheetis a violation under the GST- Law.

3.     Collectingthe tax and failure to pay same to the government

Any person who collects the taxis bound to pay the same to the government within three months failure to itmakes it a tax payment due

4.     Illegitimatecollection of tax

Collecting the any kid of taxwhich is in contravention to the provisions of GST-Tax  is an offense under the respective act.

5.     Failingto deduct tax at source or deducting lesser tax also failing to collect tax ata source or collecting lesser tax and failure to pay the collected tax togovernment account.

6.     Collectingor utilizing input tax credit without actual receipt of goods or services orboth either fully or partly.

7.     Fraudulentlyobtaining refund.

8.     Collectingor distributing input tax credit in contravention of Section 20 and the rulesmade there-under.

9.     Falsifyingor substituting financial records or producing manipulated financial records ordocuments or furnishing any false information or return with an intention toevade payment tax due under this respective act.

10.   Failure to obtain registration under this Act,

11.   Provides any false information about theregistration details, either at the time of applying for registration, orthereafter,

12.  Others offenses

·        Prohibitor obstruct any officer in the performance of his or her duties,

·         Transport of taxable goods without coverage ofproper documents,

·         Pressure on profits that lead to taxavoidance,

·          Failure to archive, maintain or maintain thebooks of account and other documents in the prescribed manner,

·         Failure to provide information or documentssummoned by the officer or to provide false information or documents,

·          Providing, transporting or storing any goodshe has reason to believe should be taken,

·          Issuing any invoice or document using anotherperson's registered registration number,

·          To tamper with, or to destroy any tangibleevidence or documents,


Penalties relating toGST Offences

Offenses under GST


Penalty for delay in filing GSTR

The late fee is Rs. 100 per day per Act. So it is 100 under CGST & 100 under SGST. Total will be Rs. 200/day. The maximum is Rs. 5,000. There is no late fee on IGST.

Penalty for not filing GSTR

Penalty 10% of the tax due or Rs. 10,000 – whichever is higher

Penalty for committing a fraud

Penalty 100% of the tax due or Rs. 10,000 – whichever is higher (High-value fraud cases also have jail term)

Penalty for helping a person to commit fraud

Penalty extending up to Rs. 25,000

Penalty for opting for composition scheme even though he is not eligible

Demand & recovery provisions of sections 73 & 74 will apply.
(i) Fraud case- Penalty 100% of the tax due or Rs. 10,000 whichever is higher.
(ii) Non-fraud case Penalty 10% of the tax due or Rs. 10,000 – whichever is higher

Penalty for wrongfully charging GST rate charging a higher rate

Penalty 100% of the tax due or Rs. 10,000    -whichever is higher (if the additional GST collected is not submitted with the govt)

Penalty for not issuing an invoice

Penalty 100% of the tax due or Rs. 10,000 – whichever is higher

Penalty for not registering under GST

Penalty 100% of the tax due or Rs. 10,000 – whichever is higher

Penalty for incorrect invoicing

A penalty of Rs. 25,000


Also,under the GST law jail term can also be a mode of punishment depending upon thegrievance and amount of the offenses which is mentioned as herein under: -

Tax Amount Involved

1cr to 2cr

2cr to 5cr

Above 5cr

Jail Term

Up to 1 year

Up to 3 years

Up to 5 years


As mentioned above

As mentioned above

As mentioned above








Written By:


Intern, Sejpal Associates Advocates

Karnavati University BB.A., L.L.B (Hons.)

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