Save money by filing return before Tax Day

Failure to file the income tax return by Tax Day, which is observed on November 30, will result in a double penalty compared to last year. So, try to avoid additional penalties by submitting your income tax return within the stipulated time.

The Income Tax Ordinance 1984 has been repealed and the Income Tax Act 2023 has been implemented this year. As a result, there have been some notable changes in the calculation of income tax for individual taxpayers and the filing of tax returns.

According to the Income Tax Ordinance 1984, if an individual taxpayer failed to file the income tax return by Tax Day, an interest of 2 percent per month was to be paid. This interest was calculated on the amount of the tax due and was to be deposited at the time of filing the return.

However, according to the Income Tax Act 2023, a 4 percent interest shall be paid monthly from this year instead of 2 percent. It should be noted that even a fraction of a month will be considered a month.

For example, a taxpayer failed to submit the return by November 30. Later, he filed the income tax return on December 7. Then, he will have to pay 4 percent interest for the whole month, not just for the seven days.

If a taxpayer files his return on January 16, he or she will have to pay 4 percent interest on the outstanding tax amount for the full two months.

A question can be asked here: According to the previous law, if the return could not be filed within Tax Day, one had to apply to the deputy commissioner of taxes seeking an extension of time. Will they need to apply under the new law? No, there is no need to apply from now onward. Returns can be filed anytime by paying 4 percent interest.

If the return is not submitted within the prescribed time, the tax-exempted income shall be considered as regular taxable income for tax calculation. This may emerge as a major financial loss for the taxpayers.

For example, if a taxpayer provides any IT services that are tax-exempted under the Income Tax Act, that income will, henceforth, be treated as fully taxable income for not filing the return by Tax Day. Therefore, the tax amount will be huge due to the cancellation of the tax exemption benefit.

So, prepare well in advance and file your income tax return before November 30. This will save you a lot of money.

Jasim Uddin Rasel is author of Smart Money Hacks