Underreporting of Income

Tax Glossary Definition

Underreporting of Income

Underreporting occurs when a taxpayer declares less income than they actually earn, either intentionally or accidentally, to reduce their tax liability. This is considered a violation of tax laws and can result in penalties, interest, and legal action if detected by the tax authorities.

Example: A freelancer earns ₹10 lakh in a financial year but reports only ₹7 lakh in their income tax return. The undeclared ₹3 lakh counts as underreported income. If the tax authorities discover this, the taxpayer may have to pay tax on the concealed amount, along with interest and penalties.

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