5 Income Tax Penalties to Avoid: Late Filing Penalty Explained

A penalty is a form of punishment given for violating a law. In the context of income tax, one shall be penalized if one fails to comply with the rules mentioned in the Income Tax Act,1961 . The penalty can either be a fixed amount or a percentage of a certain amount.

Following are some common defaults made by persons that invite penalties:

• Failing to maintain books of accounts
• Failing to get accounts audited
• Making false entries in books of accounts
• Failing to deduct TDS
• Concealment or inaccurate reporting of income
• Failing to comply with the directions issued by the income tax officer
• Failing to accept loan or advance in accordance with the rules mentioned
• Failing to disclose details of international transactions

Here is a list of 5 most common defaults that are made by persons and their corresponding penalties mentioned under the income tax act.

• 100% of the tax which was sought to be evaded by the person.
• 300% of the tax which was sought to be evaded by the person.

• Tax Deducted at the time of paying salaries to employees.
• Tax Deducted by banks at the time of crediting interest earned on Fixed deposits .
• Tax Deducted while making payments of prizes earned in a lottery, crosswords, etc.

1. Penalty for Concealment/Hiding of income or furnishing inaccurate particulars of income The income tax is levied on the total income earned by a person in a particular year. This income is aggregate in nature and includes amount earned from all sources like salaries, rent, capital gains etc.Considering this, it is often seen that people conceal their income from the assessing officer or give inappropriate details of income in order to pay less income tax. This is punishable under the act.The Tax Penalty in such cases is either of the two mentioned below.
2. Penalty for late filing of income tax return The gross income earned by a person is required to be disclosed to the income tax department in certain forms after every financial year before a specified date of the assessment year. These forms are collectively known as the Income Tax Return or ITR.For the Financial year 2018-19, the last notified date for filing income tax return was 31stDecember 2019. Failing to file the return within the said limit but before 31stMarch 2020, attracts a penalty of Rs. 10,000.However, if the gross income of a person is less than Rs.5,00,000, the amount of penalty reduces to Rs.1000.{1933B3C1-B4E8-4C18-93C7-F6A7422D018F}
3. Penalty for Default in Making Payment of Tax The income tax amount payable by a person depends on the relevant rate of the applicable slab. These slab rates depend on the total amount of income earned in a financial year. Currently, the slab rates are as follows:Any default on the part of the assessee to pay tax as per applicable rate attracts a tax penalty of an amount which shall be determined by the assessing officer. This amount shall not be more than the amount of tax in arrears.
4. Penalty for Failing to Deduct TDS TDS or tax deducted at source, is a concept whereby a person/organization making certain payment to another person is required to deduct tax at the time of making such payment. This is done, only if the payment to be made exceeds a threshold, and the deductor holds a TAN (Tax Deduction and Collection Number). Some examples of TDS are:
5. This deducted amount is in turn submitted with the government after deduction. A failure to deduct TDS by the person responsible attracts a tax penalty which is equivalent to the amount of tax which he has failed to deduct.
6. Penalty for faking entries in books of accounts The monetary transactions of a business are recorded in the accounts maintained. These books are essential for calculating income tax. It is also equally important to provide original and authentic accounts to the income tax authorities.Any forged entry, falsified document, omitted entry or documents issued by an unauthorized person, if found by the income tax officer, is punishable under the income tax act. The quantum of penalty in such cases shall be equal to the amount of such fake or omitted entry.The income tax is used for taking progressive steps towards the development of the nation. Therefore, it is the duty of every responsible citizen to pay taxes honestly. Relevant changes in laws such as e-filing of income tax returns have facilitated the seamless payment of income tax by assessees. File your tax return conveniently and on time to avoid hefty penalties.

The due date for filing income tax returns is 31st July unless extended by the Government. An income tax penalty will be imposed upon failing to file ITR.Income tax penalties can be paid online or offline. For offline mode, the taxpayer needs to visit the nearest bank branch and fill out the form ‘ITNS -280’ with accurate details. Submit the form along with the penalty amount. This payment can be made by cheque or by cash, and the receipt should be collected from the counter.For online mode, the taxpayer should open the official income tax e-filing portal . Click on e-pay tax in the left-side corner. On clicking this, the taxpayer is redirected to the NSDL website. Click on Challan No./ITNS-280 and proceed. Fill in the details for the payment. Finally, the payment can be made through the taxpayer's bank account (by using a debit or credit card).

If the assessee fails to file and pay their ITR on or before the due date, the assessee should pay the penalty and the interest. The tax penalty is calculated as follows:According to Section 234A, any delay in filing income tax returns on or before the due date (31st July) would result in late payment interest. The interest of 1%per month is applied to the outstanding tax amount.Under Section 234B, any delay or shortfall in paying advance tax according to the income tax calendar would result in late payment charges. If the tax payable is Rs. 10,000 or more, the assessee is required to pay at least 90%of advance tax. Late payment interest charges are applied if the tax liability is more than Rs. 10,000 and the taxpayer has not paid the advance tax or the payment of advance tax is less than 90% of the assessed tax. 1% late payment interest will be charged every month. In case less than 90% advance tax is paid, then the amount will be deducted from the actual amount payable, and interest will be charged on the differential amount.Section 234C is applied when there is a default in payment of an instalment of advance tax as per the timeline provided by the income tax department. The advanced tax schedule is 15% tax liability by 15thJune, 45% tax liability by 15thSeptember, 75% tax liability by 15thDecember and 100% tax liability by 15thMarch of the financial year. 1% interest is chargedevery month from the instalment date.

One cannot file income tax returns if taxes are not paid. It is important to note that income tax returns should be paid on or before the due date. This is usually the 31st of July of the assessment year. However, there are exceptions with the Government extending the due date for some reason.A penalty is imposed immediately from the end of the due date. 1% interest is charged every month, so the longer the wait the more penalty will have to be paid. To avoid late tax penalties, one must make sure to file returns on or before the due date.

Tax returns can be calculated by using an income tax calculator. This is an online tool which helps the taxpayer to calculate the tax amount to be payable in any financial year. The calculator takes all the necessary data into account like income deduction, any tax exemptions, HRA exemptions etc., on the basis of the required data, it provides an approximate amount of the taxpayer's income tax liability.

Taxable income is determined by adding the income received from all sources and then reducing the tax liability by exemptions and deductions. Income is taxable according to the prescribed income tax slab rate. The assessor can determine the taxable income based on the net annual income.Taxable income is applicable on the basis of income from salary, house property, capital gains, and business. Another source of income which is taxable is from dividends, lottery, legal gambling etc.

TDS on salary is the amount deducted by the employer at the time of payment of the employee's salary. This amount is deposited with the government by the employer after obtaining TAN (Tax Deduction and Collection Account Number) registration. TDS deduction can be tracked here.

Income Tax Rate = Income Tax Payable (this is computed keeping the slab rate in mind) / Estimated Revenue for the financial year.

With the introduction of AIS (Annual Information Statement), the taxpayer's income tax returns will be pre-filled based on TDS deductions and other sources of tax information. Taxpayers can easily calculate the income tax payable while filing their returns.Alternatively, there are other income tax calculators that taxpayers can use to compute their income tax liability.Income tax calculations involve first assessing the income from all 5 sources, salaries, capital gains, house property, business or profession and other sources. All deductions available within these sections can be calculated. Then, the general deductions under Chapter VI (Section 80C to Section 80U) can be claimed to arrive at the final taxable income on which income tax is calculated.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.