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Everything You Need To Know About The Penalties On Late Income Tax Filings And Other Charges

Jun 01, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

Under the 2018 Budget, Finance Minister Arun Jaitley decided to keep basic income tax rates and slabs unchanged. However, several other reforms including the increased penalty for late filing of income tax return (ITR) and introduction of a capital gains tax, amongst others have gone into effect from April 1, 2018. Understanding the new changes and how they are likely to affect you is key is critical for every taxpayer. Here are some of the major reforms under the new system:

Increased penalties on late filing of ITR

As of April 1, if you fail to file your ITR post the governmental deadline of July 31, 2018 (barring an official extension from the tax department) you will be liable to pay a penalty of Rs. 10,000 (maximum). If you file the ITR before December 31, but after the tax department’s deadline, you will be liable to a penalty of Rs. 5,000, however, if you file any later than December 31, your liability will increase to Rs. 10,0000. Small businesses with incomes less than Rs. 5 lakhs, are only liable to pay a maximum fine of Rs. 5,000.

Additionally, there is also a reduction in the time available to you to file an ITR. As per the old system, taxpayers could revise their ITR for about two years from the end of the period for which the return was filed. However, now you only have a year to do the same.

Higher Cess

Jaitley also implemented a hiked “Education and Health Cess” of 4% on tax liability for individual taxpayers. You will notice the same when the TDS is deducted from your salary and when you are paying your income tax liability. Earlier, there was a 3% education cess, which has now been increased by 1%.

Long-term capital gains (LTCG) tax on equity investments

As of April 1, the government has also introduced a long-term capital gains tax on equity investments. Under the system, any capital gains that exceed Rs. 1,00,000 upon sale of equity share or units of equity oriented funds will be taxed by 10% (cess extra). This is only applicable on gains after January 31, 2018. So, if you have invested in mutual funds, perhaps ULIPs will be a better alternative to save your taxes on LTCG. With iMaximize, you can avoid the disadvantages of this new policy by investing in Unit Linked Insurance Plans (ULIP) which offers a combination of protection and market linked returns.

Changes for senior citizens

As per the new system, any interests earned by senior citizens up to Rs. 50,000 will be available for deduction. Currently, under Section 80TTA, a deduction of Rs. 10,000 is allowed. This includes interest income from savings or post office accounts, and fixed and recurring deposits. This new tax system was introduced in a new section 80TTB of the Income Tax Act.

Additionally, there is also an increase in the income tax deduction for senior citizens and very senior citizens for certain diseases. The deduction has been hiked from Rs. 80,000 to Rs. 1 lakh for both senior and very senior citizens.

Medical reimbursement and transport allowance now taxable

As of the new financial year, if your salary is inclusive of medical reimbursement and transport allowance, both items will now be fully taxable. Till last year, transport allowance up to Rs 19,200 and medical reimbursement up to Rs 15,000 in a year were exempt from taxation.

However, it’s not all bad news for salaried employees. In place of the previous transport allowance of Rs 19,200 and medical reimbursement of Rs 15,000, there will now be a standard flat deduction of Rs. 40,000 which is likely to benefit over 2.5 crore employees.

EPF contribution of new women workers capped

One of the other changes introduced from April 1, is women joining the workforce for the first time will now only contribute 8% of their earnings instead of the old 10/12% to increase female participation in the workforce by increasing their take home income.

Tax free withdrawal on NPS

As of April 1, non-employee subscribers will now be able to withdraw 40% of their National Pension System (NPS) corpus tax-free when they close or opt out of it. Before the change in policy only salaried employees could enjoy this tax exemption.

Tax on dividend from equity mutual funds

A tax of 10% will now be imposed on any dividends distributed by equity mutual funds, which are now under the dividend distribution tax (DDT). The 10% tax will be deduced by the mutual fund house before the dividend is paid to you.

Understanding the tax changes and the impact they have on your expenses is critical in planning your income and taxes for the upcoming financial year. While the information can seem overwhelming, the changes affect each tax payer and should be understood carefully to ensure effective financial planning.

Advt. no.: IA/MAY 2018/4005

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