200% penalty, lost refunds, even jail: The ITR mistakes that could wreck your finances
Underreporting occurs when a taxpayer discloses less than their actual earnings, leaving taxable income out of the return.
- Sep 13, 2025,
- Updated Sep 13, 2025 8:56 AM IST
With just days left before the ITR filing deadline, tax experts are warning that underreporting or misreporting income can invite hefty penalties, interest, and even prosecution under the Income Tax Act.
What counts as underreporting and misreporting? Underreporting occurs when a taxpayer discloses less than their actual earnings, leaving taxable income out of the return. Misreporting goes further, involving false or misleading claims—such as using the wrong income category, claiming deductions for ineligible provisions, or hiding income sources.
Why it matters “Accurate income reporting is not just a compliance requirement — it’s essential to avoid serious financial, legal, and reputational risks,” said CA Shefali Mundra, Tax Expert at ClearTax.
Legal provisions and penalties
Section 270A: Penalty of 50% of the tax due on underreported income.
Deliberate misreporting: Penalty up to 200% of the tax payable, covering cases of fake invoices or suppression of facts.
Interest charges: Sections 234A, 234B, and 234C apply for delays in filing or paying tax. Interest accrues until dues are cleared.
Notices and assessments: Income mismatches flagged through AIS, Form 26AS, or bank data may trigger notices and detailed scrutiny.
Misreporting can also result in the denial of legitimate exemptions or deductions. Severe cases of evasion may attract prosecution, fines, or even imprisonment.
Tax experts stress that ITRs are legal documents, not just paperwork. Errors or misreporting can haunt taxpayers for years, affecting refunds, compliance records, and financial standing.
With just days left before the ITR filing deadline, tax experts are warning that underreporting or misreporting income can invite hefty penalties, interest, and even prosecution under the Income Tax Act.
What counts as underreporting and misreporting? Underreporting occurs when a taxpayer discloses less than their actual earnings, leaving taxable income out of the return. Misreporting goes further, involving false or misleading claims—such as using the wrong income category, claiming deductions for ineligible provisions, or hiding income sources.
Why it matters “Accurate income reporting is not just a compliance requirement — it’s essential to avoid serious financial, legal, and reputational risks,” said CA Shefali Mundra, Tax Expert at ClearTax.
Legal provisions and penalties
Section 270A: Penalty of 50% of the tax due on underreported income.
Deliberate misreporting: Penalty up to 200% of the tax payable, covering cases of fake invoices or suppression of facts.
Interest charges: Sections 234A, 234B, and 234C apply for delays in filing or paying tax. Interest accrues until dues are cleared.
Notices and assessments: Income mismatches flagged through AIS, Form 26AS, or bank data may trigger notices and detailed scrutiny.
Misreporting can also result in the denial of legitimate exemptions or deductions. Severe cases of evasion may attract prosecution, fines, or even imprisonment.
Tax experts stress that ITRs are legal documents, not just paperwork. Errors or misreporting can haunt taxpayers for years, affecting refunds, compliance records, and financial standing.