Section 412
Section 412: penalty payable when tax is in default
Section 412 adds a penalty on top of the arrears and interest already payable when an assessee is in default (or deemed in default) under this Chapter, but caps the total penalty at the amount of tax actually in arrears and requires a hearing before it is levied.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
What Section 412 says
"When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under section 411(3), be liable, by way of penalty, to pay-- (a) such amount as the Assessing Officer may direct; and (b) in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct."
Cap, hearing requirement and effect of later paying the tax
The total penalty under Section 412(1) cannot exceed the amount of tax in arrears.
No penalty can be levied unless the assessee has been given a reasonable opportunity of being heard, and no penalty can be levied where the assessee proves to the Assessing Officer's satisfaction that the default was for good and sufficient reasons.
Paying the tax before the penalty is actually levied does not by itself relieve the assessee of liability to the penalty.
Refund of penalty if the tax demand is reduced
Where a final order wholly reduces the amount of tax with respect to whose default the penalty was levied, the penalty is cancelled and any penalty amount already paid is refunded.
Frequently asked questions
Is there a maximum limit on the penalty under Section 412?
Yes - the total penalty under Section 412(1) cannot exceed the amount of tax in arrears.
Can the Assessing Officer levy the penalty without giving me a hearing?
No. Section 412(3) requires that no penalty be levied unless the assessee has been given a reasonable opportunity of being heard.
If I pay the tax before the penalty is levied, do I still owe the penalty?
Possibly yes. Section 412(4) states that the assessee does not cease to be liable to the penalty merely because he paid the tax before the penalty was levied.
What happens to the penalty if the underlying tax demand is later reduced to nil?
Under Section 412(5), if a final order wholly reduces the tax on which the default penalty was based, the penalty is cancelled and any amount already paid is refunded.
Related sections
Want this applied to your actual filing, not just explained?
Understand penalty exposure for tax in defaultLast updated 9 September 2026