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

Updated: Dec 17, 2023


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

 

Table of Content

 

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.


What is a Belated Return?


A Belated Return refers to the process of filing your income tax return after the original due date has passed. For the financial year 2022-23, the initial deadline for filing your income tax return was 31st July 2023. If you missed this deadline, you still have the option to file a late return, which is commonly known as a Belated Return. This can be done within a specific window, which extends from after the original deadline (31st July) up to the extended deadline (31st December).


Benefits of Filing ITR on Time


Filling out income tax forms is a chore that many people find to be unpleasant, which makes them think twice before neglecting this important obligation. But as law-abiding citizens, we must acknowledge the need to submit tax returns on a yearly basis, which goes beyond simple compliance to become an ethical obligation for all Indian workers.


Not only does filing an Income Tax Return (ITR) satisfy legal requirements, but it also has other benefits:


Legal Documentation:

The ITR is an essential legal document that verifies an individual's identification and income. The government accepts it for a number of uses, such as meeting paperwork requirements or getting an Aadhar card.


Claiming Deductions:

Reducing the total tax burden is possible for taxpayers who file an ITR by allowing them to claim deductions and exemptions. Benefits from investments, rebates, and the opportunity to claim Tax Deducted at Source (TDS) are included in this.


Important for Credit Cards and Loans: 

When submitting an application for a credit card or loan, the ITR becomes a vital document. ITRs over the previous three years are often requested by financial institutions in order to evaluate a person's capacity to repay debt and maintain stability.


Enables International Travel: 

Are you considering traveling overseas? Your application for a visa is strengthened if you file an ITR. It gives the embassy information about your financial status and a history of financial responsibility.


Preventing Penalties:

The Income Tax Act of 1961 imposes penalties for failure to submit returns even in cases when the taxpayer is liable to pay taxes. ITR filing is a preventative step to avoid financial consequences.


Carrying over Losses:

The Income-tax Act of 1961's Sections 70 and 71 permit losses to be carried over to succeeding years. With the help of this provision, people may deduct losses from their future income—a benefit that is lost if an ITR is not submitted.


It is important to understand that submitting income tax returns advances both individual and governmental goals. The government uses the money it collects in taxes to fund programs that help strengthen the country, such as the military, healthcare, and infrastructure. By doing their part, citizens contribute to the development of a strong and resilient country.


Filing Income Tax Returns Using Online and Offline Methods

You can file itr through online and offline methods:


Online Method

  1. Log in to your e-filing account.

  2. Click on 'e-File,' choose 'Income Tax Returns,' and select 'File Income Tax Return.'

  3. Pick the relevant assessment year.

  4. If you opt for the 'Online' mode of filing, follow Steps 5-10. If you select the 'Offline' mode of filing, skip them.

  5. Click on the 'Start new filing' button.

  6. Select your applicable tax status.

  7. Choose the appropriate ITR form.

  8. Verify and ensure the accuracy of your personal details in the 'Personal Information' section.

  9. Scroll down to the filing section and select Form 139(4).

  10. Fill in your income details under various source heads and pay the tax.


Offline Method

Download the Offline ITR Preparation Utility and prepare the ITR. Once completed, upload the .json file and proceed with verification.


What to Do if You Receive a Late Payment Notice


If you receive a late payment notice from the Income Tax Department, particularly for returns overdue by more than two financial years, you can prepare your returns online by visiting Taxbuddy After preparation, print the return and submit it to the income tax office in your ward.


Typically, taxpayers file an overdue return in response to an income tax notice. It's important to note that delayed returns cannot be revised except for belated returns from FY 2016-17 onward, which can now be revised.


Remember that if you haven't filed returns for certain years, you may be unable to carry forward some types of losses. However, an exception exists for losses from house property, which can still be carried forward even if you file your returns late.


Exceptions to the Penalty for Late Filing of ITR


The imposition of penalties for late filing of Income Tax Returns (ITRs) is not always set in stone. The Income Tax department retains the authority to waive penalties when presented with legitimate reasons for the delay. However, it's crucial to understand that such decisions are entirely at the department's discretion.


Factors that Determine the Penalty Amount


Before diving into the specifics of penalty amounts, let's first establish the relevant dates that play a pivotal role in categorizing the filing as delayed or not.


  • In the context of Assessment Year 2022-23, which corresponds to Financial Year 2021-22, the due date for filing returns under section 139(1) of the Income Tax Act is typically 31st July 2022, assuming no extensions.

  • It is essential to recognize that merely paying taxes on time does not fulfill a taxpayer's obligations. In addition to timely tax payments, taxpayers must file returns in the prescribed format before the due date. Since the financial year 2017-18, the Central Board of Direct Taxes (CBDT) has mandated penalties for missing the ITR filing deadline, coupled with possible legal consequences.

  • For individuals and entities not subject to tax audits, the deadline for ITR filing remains 31st July 2022.

  • Taxpayers under tax audit (excluding transfer pricing cases) have an extended deadline of 31st October 2022. For taxpayers governed by the transfer pricing mechanism, the deadline is further extended to 30 November 2022.

  • Revised or belated income tax returns for the same financial year can be filed until 31st December of that year. For Financial Year 2021-22, corresponding to AY 2022-23, the last date for filing revised returns was 31st December 2022.


When returns are not filed within the stipulated time frame, late fees are imposed under Section 234 of the Income Tax Act. The penalty amount becomes a prerequisite for the submission of delayed returns, encompassing both ITR late filing penalties and income tax late fees. Here's how the penalties are calculated for late returns:


  • In regular cases, the due date for filing Income Tax returns for FY 2021-22 was 31st July 2022. If this deadline was missed for any reason, delayed returns could be filed until 31st December 2022. Please note that online filing is not permitted beyond this date.

  • Even if the returns are filed before 31st December in such cases, taxpayers are required to pay a penalty for late filing. In this scenario, the maximum penalty levied is Rs 5,000 if you file your ITR after the due date of 31st July 2022 but before 31st December 2022.

  • A special concession exists for small taxpayers. If the total income does not exceed Rs 5 lakh, the maximum penalty for delay is limited to Rs 1,000.


Penal Interest


In addition to late filing fees, any outstanding tax liability will incur extra interest until it is settled. As stipulated by Section 234A of the Income-tax Act, 1961, taxpayers are liable to pay simple interest at a rate of 1 percent for each month or part of a month, commencing from the day immediately following the due date, which is July 31, and extending up to the actual date of return submission. This interest accrues on the unpaid tax amount and is a financial incentive for timely tax settlement.


Consequences


Income Tax Returns (ITRs) filing late may have a series of negative effects that can affect one's finances, legal status, and daily life. The Income Tax Act's pecuniary penalties, which may become more severe with extended lateness, are the most severe of them. The financial burden is further compounded by the interest that is accrued on any outstanding tax bill from the initial due date to the actual filing.


It is essential to file your ITR on time in order to protect a number of advantages, such as deductions and loss carryover. Delayed filings may compromise loan applications as financial organizations often need updated ITR records as evidence of income. Legal ramifications for non-compliance may include the Income Tax Department starting procedures that might lead to further penalties or prosecution in the worst situations.


Taxpayers wait for their legitimate returns when there are delays in submitting their ITRs, which also impedes the processing of tax refunds. A late filing also removes the ability to file amended returns, making fixing mistakes or omissions more difficult. Even if there isn't a direct result, persistent delays might have an indirect effect on someone's creditworthiness since certain financial institutions value timely ITR filing when determining credit ratings. To lessen these complex effects, careful adherence to filing deadlines and expert assistance when required are crucial.




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.



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