Income Tax Payment : An Overview of Types & Penalties

Introduction: 

Income tax is an essential part of every working individual's life in India. It's the financial contribution we make to our country's growth and development. While many aspects of taxation can seem daunting, understanding the different types of income tax payments, such as TDS, Advance Tax, and Self-Assessment Tax, can make the process smoother and less overwhelming. 

Types of Income Tax Payments

1. Tax Deducted at Source (TDS) :

Tax Deducted at Source, commonly known as TDS, is a mechanism for the government to collect tax at the source of income itself. It is deducted by the payer of income at specified rates, ensuring a consistent stream of revenue to the government.

This deduction can apply to various forms of income, including salaries, interest, rent, and professional fees. Different sources of income have different TDS rates. The payer must deduct TDS at the specified rate, and the payee receives the net amount.

Failure to comply with TDS provisions can lead to penalties. TDS deductions need to be reported by the payer through TDS returns. These returns provide a summary of TDS deducted and deposited. Payers must ensure timely and accurate filing to avoid legal consequences.

2. Advance Tax :

Advance Tax is another vital aspect of the Indian income tax system, serving as a proactive method for individuals to pay their income tax liabilities in installments throughout the financial year. It  is relevant to individuals whose anticipated tax liability for the financial year surpasses Rs. 10,000. This includes salaried individuals, freelancers, and business owners.

To ensure the systematic collection of taxes, the Income Tax Department has set specific due dates for making Advance Tax payments. It's essential to adhere to these due dates to avoid incurring interest charges.

The process of determining your Advance Tax liability begins by estimating your total income for the year. This includes income from various sources, such as salaries, business profits, and other investments. After estimating your income, apply the applicable tax rates to compute your tax liability.

Advance Tax payments are generally scheduled in installments, with the due dates specified by the tax authorities. It's crucial to assess your income and tax liability periodically to make any necessary adjustments in subsequent installments.

3. Self-Assessment Tax :

Self-assessment tax is the final step in the income tax payment process, where you reconcile your total income and taxes paid. Before paying self-assessment tax, you must file income tax return . This process involves reporting all sources of income, claiming deductions, and determining the final tax liability.

After filing your return, if you find that you have an outstanding tax liability, you must pay self-assessment tax. This can be done online through the Income Tax Department's website or at designated banks.

It's crucial to pay self-assessment tax by the due date to avoid interest on delayed payments. The interest rate is determined by the Income Tax Department's rules.

4. Surcharge: An Additional Tax Imposed on Higher Incomes :

A surcharge, in the context of income tax, is an extra tax imposed by the government on individuals with annual incomes surpassing INR 50 lakhs and companies with earnings exceeding Rs 1 crore. It's important to note that the surcharge is calculated based on the income tax amount, not the total income itself. The rate of surcharge varies depending on the total taxable income of the taxpayer for the specific assessment year.

5. Surcharge, Cess, and Fundraising Tax :

The government levies surcharge and cess for distinct purposes, such as education, health, and various other social and economic objectives. Unlike conventional taxes, these contributions are collected for specified periods and are subject to periodic adjustments or potential elimination.

In India, various forms of cess are imposed by the government, including Education Cess, Swachh Bharat Cess, Krishi Kalyan Cess, Infrastructure Cess, among others. The specific rate of deduction is contingent upon the fiscal policy applicable for a given assessment year.

6. Surcharge, Cess, and Tax on Regular Assessment :

Ensuring accurate tax calculations and payments is a fundamental responsibility for every individual. When the Income Tax department identifies a shortfall in the payment of taxes compared to the actual tax liability, it takes necessary action to determine the correct amount of tax owed. Consequently, Tax on Regular Assessment is the amount demanded from such individuals.

This outstanding amount must be settled within 30 days of receiving the notice of demand.

Penalties :

1. Penalty for late income tax payment :

There are penalties for late income tax payment in India. For personal income tax, the penalty for late filing of the return is Rs. 5,000, or Rs. 1,000 if the total income does not exceed Rs. 5 lakhs. The penalty for late payment of tax is 1% of the unpaid tax per month, subject to a maximum of 100% of the unpaid tax.

For corporate income tax, the penalty for late filing of the return is Rs. 10,000. The penalty for late payment of tax is 2% of the unpaid tax per month, subject to a maximum of 100% of the unpaid tax.

Also, read:  Repercussions of Filing Income Tax Return After Due Date  

2. Other penalties for income tax non-compliance :

In addition to the penalties for late income tax payment, there are also penalties for other types of income tax non-compliance, such as:

✅ Failure to deduct tax at source (TDS) :

If a person fails to deduct TDS, they may be liable to a penalty of up to 100% of the tax that should have been deducted.

✅ Filing of incorrect or incomplete ITR :

Filing of an incorrect or incomplete income tax return may lead to a penalty of up to 100% of the tax that has escaped assessment.

✅ Concealment of income :

Concealment of income is a serious offence and may lead to a penalty of up to 300% of the tax that has escaped assessment, as well as prosecution.