ITR mistakes: When does the income tax penalty rise to 200% and how does it differ from late fees?

A mistake in your income tax return (ITR) 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 taxpayers need to know.

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.

• 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.

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 return 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.

Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.

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