Under-reporting of income refers to the act of declaring less income than what is actually earned in a financial year. In the Indian context, this usually happens when individuals, businesses, or entities fail to report all their income sources while filing their Income Tax Return (ITR), whether intentionally or due to oversight.
This is a serious issue from a compliance perspective. The Income Tax Department treats under-reporting as a violation under Section 270A of the Income Tax Act, 1961. If caught, it can lead to significant penalties—typically 50% of the tax payable on the under-reported income, and up to 200% in cases where it’s considered willful misreporting.
For small business owners and startups, accurate income reporting is crucial—not just to avoid penalties, but also to maintain clean financial records that are often required for loan approvals, investor confidence, and government registrations. Many first-time entrepreneurs unknowingly under-report income by not disclosing cash sales, freelance earnings, or income from secondary sources. Even small mismatches between reported income and data available with the tax department (from TDS statements, GST returns, or bank transactions) can trigger scrutiny.
To stay compliant, it’s essential to maintain proper bookkeeping, reconcile bank statements, and ensure that all income—whether taxable or exempt—is properly disclosed. Tools and professional services that assist with accurate ITR filing, like those offered by Fintax24, can help reduce the risk of errors and ensure smooth compliance with tax laws.
In short, under-reporting of income is not just about tax evasion—it’s a risky oversight that can affect your business reputation, attract audits, and lead to financial penalties. Being transparent and accurate in income reporting is the safest and most professional approach.