For many people, income tax is a subject of confusion and stress. Questions like “Do I need to pay tax?”, “Till what income am exempt?”, “What happens if I don’t pay?” are common, but the answers are often misunderstood.

Income tax is not just a financial burden, it is a legal obligation. Failure to comply doesn’t only lead to monetary loss but can also bring penalties, notices, and even prosecution.

With the Union Budget 2025, there have been major changes in the tax-free income threshold, making it important for every citizen to understand where they stand.

Who is Liable to Pay Income Tax?

The Income Tax Act, 1961 lays down that every “person” (individual, HUF, firm, LLP, company, trust, or association of persons) must pay income tax if their income crosses the exemption limit.

For individuals (FY 2024-25 / AY 2025-26) under the new tax regime (default regime):

• Up to ₹3,00,000 – No tax (basic exemption limit).

• Up to ₹12,00,000 – No tax, due to enhanced rebate under Section 87A (₹60,000).

• For salaried employees: With the standard deduction of ₹75,000, the effective tax-free income limit becomes ₹12.75 lakh.

• Above ₹12.75 lakh – Normal slab rates apply as per the new tax regime.

In simple words: If your total income is up to ₹12.75 lakh in a year (for salaried individuals), you don’t have to pay any income tax.

Important Exception: This benefit does not apply to incomes taxed at special rates, such as:

• Short-Term Capital Gains (STCG) under Section 111A

• Long-Term Capital Gains (LTCG) under Section 112A

  
  

These will continue to be taxed separately, even if your total income is within ₹12.75 lakh.

Common Issues Faced by Taxpayers

1. Confusion between Old and New Regime – People are unsure which regime is better for them.

2. Delay in Filing Returns – Missing the due date (generally 31st July for individuals) leads to late fees and interest.

3. Mismatch in Income Records – Differences between Form 26AS/AIS and actual income declared often result in notices.

4. Not Paying Advance Tax – Professionals, freelancers, and businesspersons often forget advance tax obligations.

5. Non-Disclosure of Income – Many fail to report rental income, interest on FDs, or foreign income.

   
   

What Happens If You Don’t Pay Income Tax?

Non-payment or late payment of income tax has serious legal consequences:

• Interest & Penalties – Charged under Sections 234A, 234B, 234C.

• Late Filing Fees – Up to ₹5,000 under Section 234F.

• Penalty for Misreporting Income – Up to 200% of the tax amount under Section 270A.

• Prosecution – Section 276C provides 3 months to 7 years of imprisonment for willful evasion.

• Recovery Proceedings – Bank accounts, salary, or property may be attached to recover dues.

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Violations under the Income Tax Act, 1961

Some actions are treated as violations and attract penalties or prosecution:

●     Not filing ITR despite income above the exemption limit (Sec 139).

●     Not maintaining proper books of accounts (Sec 44AA).

●     Failure to get accounts audited when required (Sec 44AB)

●     Deducting but not depositing TDS (Sec 276B).

●     Accepting or repaying cash transactions of ₹2 lakh or more in a day (Sec 269ST).

●     Concealing income or providing false information (Sec 270A, 271AAC).

Conclusion

Income tax is not just a financial duty, it is a legal responsibility. Most people who face penalties or notices are not habitual defaulters but ordinary individuals who are uninformed or careless.

With the new ₹12.75 lakh tax-free limit for salaried taxpayers, the law has given significant relief. But it is equally important to remember that timely compliance, proper disclosure, and accurate filing are the only ways to stay out of trouble.