How many penalties if we don't pay income tax on time

For curbing tax evasion and the proliferation of money, the Income Tax Department of India has taken several steps over the recent past. Not paying income tax in time is a serious offence. During last year, the number of persons convicted for tax evasion has increased by 269% which indicates the seriousness with which the government is viewing the tax defaulters. Here we discuss the different penalties for not paying income tax in time.

Penalty for non-filing

If an individual fails to file Form 1040, he or she must use Form 4868 to seek an extension before April 15. This will avoid the accrual of penalties. Usually 5% per month is imposed as penalty for tax balances due. If there is a delay in filing tax returns, customers must pay the whole month’s charges irrespective of how much late they are in a given month. For instance, even if the returns are filed on the 1st of a particular month, the 5% penalty is charged for the month. IRS considers non-filing tax returns as a more serious offense than non-payment of tax. In any case, the penalty cannot exceed 25% of the total value of the taxes not paid by the customer.

Penalty for non-payment


Unpaid taxes invite penalties as follows. If a customer files the ITR or extension by 15th of April but does not pay the taxes within the same month, a penalty for non-payment which will equal 0.5% will be charged. Just like a non-filing penalty, non-payment penalty is usually calculated for every month or parts of the month in which the tax amount remains unpaid. In the same way as non-filing penalty, the penalty for non-payment can accrue till the time it touches the unpaid tax bill of the customer.

Penalty for under-payment

Under-payment penalty is applicable when a tax payer fails to make the full payment of the tax they owe. Taxes are supposed to be paid as and when the income is earned. The majority of tax payers who earn through salaries comply with this rule due to the fear that the income tax could be withheld from their paychecks. However, freelancers like independent contractors who make income from contractual jobs and those who make additional income other than their salaries need to ensure that they cover the tax due through their estimated tax payments. Other kinds of income like prize winning, earnings on investment and stock options also invite taxes. The individuals who earn through different kinds of untaxed income pay the money they owe at the time of filing ITR. Failing to pay the same will invite an underpayment penalty irrespective of whether you pay the whole tax due eventually.


Why this discussion

Filing the ITR in time and paying the taxes the tax payer owes to the government in time are considered as important duties of the citizens. Complying with this expectation can work for the advantage of the individual while defaulting on them can invite serious negative consequences.