Penalty for late filing of income tax return and Understanding it’s Consequences

Please mark your calendars for the noteworthy due dates for filing your Income Tax Returns (ITR) based on different categories. For individuals, Hindu Undivided Families (HUF), Associations of Persons (AOP), and Body of Individuals (BOI) who do not require audited books of accounts, the deadline is set for 31st July 2023.

Businesses that require an audit should ensure their ITR is filed by 31st October 2023. In the case of businesses requiring transfer pricing reports for international or specified domestic transactions, the due date is 30th November 2023.

If you need to submit a revised return, make sure to do so by 31st December 2023. Similarly, for belated or late returns, the deadline is also 31st December 2023.

What consequences will follow if you miss out on the deadline?

1) In case you file your income tax return after the due date, you will be liable to pay interest as per Section 234A. The interest rate is 1% per month or part thereof on the outstanding tax amount that remains unpaid.

2) Under Section 234F, a late fee of Rs. 5,000 is applicable for delayed filing of the income tax return. If your total income is below Rs. 5 lakhs, the late fee gets decreased to Rs. 1,000.

3) If you have incurred losses from sources such as the stock market, mutual funds, properties, or your businesses, you have the option to carry them forward and offset them against your income in the following year. This can significantly reduce your tax liability. It is important to note that you can only avail of loss adjustment if you declare these losses in your Income Tax Return (ITR) and file it with the income tax department before the declared deadline.

4) Under a situation when you miss the deadline for filing your ITR, you have the provision to submit a belated return, but there are certain consequences to consider. Filing a belated return entails paying late fees and interest charges. Additionally, you will not be able to carry forward any losses for future adjustments. The income tax department has set the due date for filing belated returns as 31st December of the assessment year unless the government extends it. For this year, you can file a belated return by the latest 31st December 2023.

Let us dive into the due dates for advance tax ranging across its installments.

On 15th June 2023, the first instalment is due, amounting to 15% of your total tax liability. The second installment, accounting for 45% of your tax liability, falls on 15th September 2023.

For the third instalment, due on 15th December 2023, you are required to pay 75% of your tax liability. The fourth and final instalment is due on 15th March 2024, which covers the remaining 100% of your tax liability.

Additionally, if you are under the presumptive scheme, you must pay 100% of your tax liability by 31st March 2024.

Let us define tax audit and its corresponding penalty for late filing of income tax returns:

A tax audit is a process that verifies an entity's financial records to ensure compliance with the Income Tax Act, of 1961. Specific categories of taxpayers must undergo a tax audit conducted by a Chartered Accountant (CA) or a CA firm. Businesses with an annual turnover exceeding 1 crore and professionals with receipts above Rs 50 lakh are required to undergo a tax audit.

This examination helps ensure adherence to tax regulations and promotes transparency in financial reporting.

Unfolding further the categories that the penalty for late filing of income tax return entails:

1) Failure to file a tax return despite receiving notices can lead to prosecution initiated by the income tax officer. This can result in imprisonment ranging from three months to two years, along with a fine. If the tax owed is substantial, the prosecution period may extend up to seven years.

2) Additionally, the income tax officer can impose a penalty of up to 50% of the tax due in cases of underreported income.

3) Unless the return is filed within the due date, losses (except for house property losses) cannot be carried forward to offset future gains. However, losses under house property are allowed to be carried forward.

Besides the imposed penalty, there is an accrual of interest at a rate of 1% per month or any portion thereof, as stipulated under Section 234A, on the unsettled tax amount until it gets timely paid.

4) To receive your tax refund promptly, it is essential to file your returns before the due date. Filing on time ensures that you can claim any excess taxes paid and receive your refund promptly.

The advantages of filing income tax returns vary across taxpayers.

1) Filing ITR enables individuals to claim tax refunds from the IT Department. This is particularly advantageous for salaried and self-employed individuals in higher income brackets. Also, filing ITR proves advantageous when applying for home loans, especially for NRIs with taxable properties in India. By filing returns, individuals can enjoy a standard 30% deduction on home loan interest and property taxes.

2) Financial institutions require ITR receipts as supporting documents when applying for loans, such as home or car loans. Salaried and self-employed individuals can benefit from this, as the ITR receipt serves as income proof, eliminating the need for additional documents and facilitating loan approvals.

3) ITR receipts are essential for visa applications, especially for countries like the US. Embassies request ITR receipts as proof of income to assess an applicant's tax compliance and financial capability to cover travel expenses. Salaried and self-employed individuals can benefit from this requirement by filing their ITR.

4) Under Section 80D of the Income Tax Act, the IT Department allows deductions of up to ₹50,000 on health insurance premiums paid in a fiscal year. This deduction benefits senior citizens who can avail themselves of medical insurance coverage and undergo treatments without any hassle.

5) Loss Compensation: Businesses can offset losses incurred during a fiscal year by filing timely IT returns. This enables them to carry forward tax losses and claim them in the future.

6) Self-employed individuals and businesses with annual turnover below ₹2 crores can opt for a presumptive taxation scheme by filing ITR with form number 4. It allows professionals and businesses to consider a percentage of their income as profit, resulting in reduced taxation.

FAQs:

Q1. What are the consequences of missing the tax payment and return filing deadline, and how much is the penalty for late filing if the total income is below Rs.5 lakh?

If you fail to pay taxes and file your return by the due date, you can still do so after the deadline. However, there will be penalties and interest imposed when filing your ITR late. The penalty for delayed filing is Rs.5,000, but if your total income is less than Rs.5 lakh, the fee is reduced to Rs.1,000.

Q2. What provision in the Income Tax Act permits the filing of a belated return, and what is the penalty for filing the return after the due date?

Section 139(4) allows for the submission of a belated return, which means filing a return after the due date. A penalty of up to Rs.5,000 is imposed for filing the return late.

Q3. What are the different due dates for filing Income Tax Returns (ITR) based on the taxpayer category and compliance requirements?

The due date for filing Income Tax Returns (ITR) varies based on the nature of the taxpayer. Individuals, Hindu Undivided Families (HUF), Associations of Persons (AOP), and Body of Individuals (BOI) who do not require audited books of accounts have until 31st July 2023 to file their ITR. On the other hand, businesses that require an audit should ensure their ITR is filed by 31st October 2023. For businesses requiring transfer pricing reports for international or specified domestic transactions, the due date is 30th November 2023. If you need to submit a revised return, make sure to do so by 31st December 2023. Likewise, for belated or late returns, the deadline is also 31st December 2023.

Q4. How can salaried individuals and self-employed individuals benefit from providing income tax return (ITR) receipts as supporting documents during loan applications, particularly for loans such as home or car loans?

Financial institutions require ITR receipts as supporting documents when applying for loans, such as home or car loans. Salaried and self-employed individuals can benefit from this, as the ITR receipt serves as income proof, eliminating the need for additional documents and facilitating loan approvals.

Q5. How does the provision of deductions up to ₹50,000 on health insurance premiums, as permitted under Section 80D of the Income Tax Act, contribute to facilitating hassle-free medical insurance coverage and treatments for senior citizens?

Under Section 80D of the Income Tax Act, the IT Department allows deductions of up to ₹50,000 on health insurance premiums paid in a fiscal year. This deduction benefits senior citizens who can avail themselves of medical insurance coverage and undergo treatments without any hassle.