Rs 5000 Fine for Zero Tax? Section 234F Desperately Needs a Fix
Numerous taxpayers are facing a confusing issue while filing their Income Tax Return (ITR) this financial year. Here are the questions they have in their minds:
- Taxable Income below Rs. 7 Lakh: No Tax Payable
Under the New Tax Regime, Section 87A rebate says if your taxable income after all deductions and exemptions permitted under said regime is up to 7 lakh, then you are not required to pay any tax on your income below this limit, meaning your tax liability stays zero.
- Late Filing of ITR: Penalty under Section 234F
However, here comes a catchy point: if your income is above this limit and you are liable to pay tax on your income, but you do not file your ITR (Income Tax Return) on or before the due date (usually July 31, for FY25-September 16, 2025), then you may attract a penalty of up to Rs. 5000 under Section 234F of the Income Tax Act.
The section says if your taxable income is less than or equal to Rs. 5 lakh, then you may attract a penalty of up to Rs. 1000 as a late filing fee. But, if your taxable income is more than Rs. 5 lakh, then you may attract a penalty of up to Rs. 5000.
The contradiction here is that now, under the new tax regime, one can possess a taxable income between Rs. 5 lakh and Rs. 7 lakh and can still have zero tax liability under the Section 87A rebate. However, the tax department has not yet updated this in Section 234F to align with the new rules of the New Tax Regime. The section still says one can attract a penalty of up to Rs. 5,000 if taxable income is above Rs. 5 lakh, even though in reality, under the New Tax Regime, you are not required to pay any tax because of the rebate.
- Why People Are Demanding Change
This is unfair under the Income Tax Rules because the Income Tax Department has itself said that taxpayers are not required to file ITR if their annual income is below 7 lakh; however, a penalty of up to Rs. 5000 applies if your income is more than Rs. 5 lakh under Section 234F. That is why many experts and taxpayers are saying it is high time the government updated Section 234F in line with the new tax regime slabs. This would ensure that people with taxable income up to Rs. 7 lakh (who already have zero tax liability) are not punished with a high late fee.
A chartered accountant (CA) has also highlighted this issue in her post at platform ‘X’ (formerly Twitter), saying, ”
– Taxable Income below 7 Lakh!
– Zero Tax Liability as per Income Tax!
– But Late fees of 5000 are applicable as the Taxable Income is more than 5 Lakh!
High Time Government should update Section 234F in line with the New Tax regime slabs.”
– Taxable Income below 7 Lakh!
– Zero Tax Liability as per Income Tax!
– But Late fees of 5000 is applicable as Taxable Income is more than 5 Lakh!High Time Government should update Section 234F in line with New Tax regime slabs.
— CA Pratibha Goyal (@PratibhaGoyal) September 19, 2025
