Any inaccurate or incomplete declaration in your tax return will be detected by IRAS during audit and investigation. When IRAS detects errors or omissions in taxpayers’ returns, penalties will be imposed. IRAS will look into individual circumstances in deciding the penalty amount, including reasons for the discrepancy, how the taxpayer has complied in the past, taxpayer’s commitment to compliance in the future.
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Penalties for error / omission / discrepancy in tax return without any intention to evade taxes
Depending on individual circumstances, a taxpayer convicted under Section 95 of the Income Tax Act may be imposed with a penalty ranging from 0% to 200% of the amount of tax undercharged. A fine up to $5000 or an imprisonment up to three years may also be imposed.
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Individual circumstances considered when determining penalty amount
To treat each taxpayer fairly, individual circumstances will be considered in deciding the penalty.
These considerations are not applicable for taxpayers who have willfully or intentionally evaded taxes. Any person who submits inaccurate and incomplete information with the intention to evade taxes will not be eligible for the consideration of individual circumstances described below but will be penalized more severely.
Nature of Offence: First Offence
IRAS understands that first offences could possibly occur due to ignorance or negligence on the part of the taxpayer. Depending on the nature of the offence, penalties may be remitted only for first offenders.
The first offence is the first time the taxpayer has omitted to declare some income or wrongly claimed some relief / expenses. Subsequent act of income omission or wrongly claiming some relief / expenses will be the second, third or subsequent offences. For example, if the first offence committed relates to an omission of interest income and a subsequent omission committed relates to rental income, the omission of the rental income is treated as a second offence and no penalty will be remitted. This does not include filing or payment offences.
Taxpayer’s Compliance History
IRAS will treat taxpayers who have been compliant with their tax responsibilities more favourably than taxpayers who have displayed non-compliant behaviour in the past. Bad compliance history is an aggravating factor when IRAS decides on the penalty for the tax offences.
A taxpayer is considered to have a bad compliance history if he has two bad compliance records within two years before the date of the final audit report. Bad compliance records include:
late payment of taxes due
late filing of ECI
late filing of tax return or
previous omission of income or wrongful claim of relief / expense
Taxpayer’s Cooperation during Audits
Being uncooperative during the audit is an aggravating factor when IRAS decides on the penalty for the tax offences.
A taxpayer is considered to be uncooperative during an audit when:
The taxpayer does not respond to audit queries in a timely manner and has no reasonable excuse for the delayed response
The taxpayer delays the progress of the audit with no reasonable excuse or obstructs the progress of the audit
Taxpayer’s Commitment towards Better Compliance in the future
IRAS believes that taxpayers will be compliant with the right guidance. Taxpayers' commitment to improving their tax compliance going forward is a mitigating factor when IRAS decides on the penalty for the tax offences. Taxpayers can signal their commitment to better tax compliance by undertaking to improve their record keeping, using proper accounting software and/or engaging suitably qualified person to prepare their accounts, etc.
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How you will be notified of penalty
You will be notified in writing of the penalty amount, the due date for the payment of the penalty and an explanation on why penalty was imposed.
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Report a mistake to qualify for zero penalty or lower penalty
To encourage taxpayers to review their past records and voluntarily declare any error made, IRAS is prepared to accord the following penalty treatment for first-time voluntary disclosure of incorrect returns submitted without intention to evade tax. For more information, please refer to how you can report a mistake to qualify for zero penalty or lower penalty.
|Types of Voluntary Disclosures
Timely voluntary disclosure made within a grace period of one year from statutory filing date.
The qualifying conditions under the Voluntary Disclosure Programme must be met
Voluntary disclosures made after grace period
Reduced penalty of :
^ For Income Tax, zero penalty is granted for voluntary disclosures made within a ‘grace period’ of one year from the statutory filing date. After the lapse of the ‘grace period’, IRAS will impose a reduced penalty of 5% for every back year the disclosure was made late, on an incremental basis.