4 common tax penalties and how you might avoid them

Tax or the mandatory financial duty levied by the Government on the citizens of the country to fund various Government undertakings, no matter how much unwanted is a compulsion that individual needs to fulfill. Commoners look forward to the budget every year and are always awaiting some optimistic outcome which would relieve them to some extend of the necessary burden of paying a part of their hard earned money as tax. The Indian Revenue Service elementarily superintended to collect and further administer the tax (both direct and indirect) for the development of the nation, is a strict civil body very well at doing its job. Individuals and business institutions not abiding the duty of transferring to the Government the inevitable charge and falling under the supervision of IRS is sure to get penalised. In order to avoid the extra penance the following list might be useful.

• Delayed filling – When the burden of paying tax cannot be eradicated why delay the onus? Usually the taxpaying date falls in and around the 15^th of the 1^st month of a new financial year. Individuals paying their tax bill on due dates but demanding additional time need to file an extension. Such individuals would not be responsible for submitting any late fine. Failing to file the extension would lead to an imposition of 5% of the unpaid tax amount for each delayed month as the fine. Detaining for more than 60 days can elevate the fine amount to even 100%. Thus it is better to mark the 15^th of April in the calendar, to serve as a reminder!

• Late payment – Missing the deadline of paying the accrued due tax, an individual would be subject to paying an additional 0.5% of the tax amount as the fine. The fine can rise to a maximum of 25%. Most like other additional fees and interest are to top up the fine amount. For individuals sure of their ability to miss the tax payment date, it is always better to fill an extension beforehand to be on a safe side. Along with the request if personals pay at least 90% of the due amount, he/she would not be entitled for a fine.

• Underpayment of fine for the estimated tax – This kind of malpractice is generally undertaken by small business proprietors trying to escape from the onus of contributing a part of their profit to the Government. Paying less than the estimated amount is a punishable act and attracts the attention of the IRS. Not only will such personals be imposed an extra toll but would face future tax endeavour full of further challenges.  It is best to make a proper estimate of the payable tax and pay on time.

• Bounced Cheque – Submitting a dishonoured cheque to the IRS is likely to attract unwanted and unnecessary penalties. If the reason of cheque return pops out to be “insufficient funds” then the IRS sends it for clearing for a 2^nd time and the transfer without further issue exempts individuals from a penalty. If the cheque return takes place for any other reason the tax payer needs to pay a fine. For cheque amount < $1250 the penalty is either the amount on the cheque or $25, whichever is less and for above $1250, 2% amounts the fine. The best way to avoid such a penalty is to keep track of the funds when submitting a cheque.