Merely paying the due amount of tax is not sufficient. In addition, the Income-tax rules require a taxpayer to also file return, irrespective of whether tax is due or not. Therefore, for all those with income above the exempted limit, taxreturn filing within the due date is a must.
Every year, July 31 is the date by which taxpayers are supposed to file their I-T returns (ITR). The deadline for the assessment year 2016-17 which pertains to income earned in the financial year 2015-16 was extended till August 5, 2016. Suraj Nangia, Partner, Nangia & Co, says, "With less than 3 per cent of people in India filing tax returns, the perception amongst most is that since TDS (tax deduction at source) has happened, filing of tax returns is not important. Many taxpayers also often take it easy as an income-tax return for FY 2015-16 can be filed by March 2018."
Despite repeated reminders by the I-T Department and the extension of the due date, there could be some taxpayers who have failed to file their returns. We will not go into the reasons here, but let's see the implications for those who fail to file the return by the due date.
Belated returns can be filed by...
Filing ITR after the due date is called belated return. It can be filed before the end of the relevant assessment year or before completion of the assessment, whichever is earlier. Dr Suresh Surana, Founder, RSM Astute Consulting Group, informs, "If an individual misses the deadline of August 5, 2016 for filing return pertaining to FY 2015-16 (AY 2016-17), he can file a belated return by March 31, 2018."
But even if one is unable to file one's return, at least the taxes, if any, should be paid. Swami Saran Sharma, Director & CEO, InsuringIndia.com, suggests, "The best scenario is to pay your taxes and file your return in time. But in case one is not able to file the tax return due to some reason, it is advisable to calculate and pay the tax due before the scheduled date of filing the ITR. If all your taxes are paid, you do not attract any penalty even if the return of income is filed anytime before March 31 of the following year."
Penalty for belated filing
Not filing your return on time means you are liable to the penalty and prosecution provisions under the I-T Act, if taxes are unpaid. If you have not furnished the return within the due date and you have tax dues to be paid, you will have to pay interest on the due amount of tax as well. Nangia informs, "Penalty is levied by the tax officer in cases where the taxpayer fails to file his return before the due date. Under Section 271F, the tax officer may levy a penalty of Rs 5,000 for failure to furnish return of income. The penalty for any delay beyond August 5 is not levied automatically and is at the sole discretion of the tax officer. In extreme cases, where the taxpayer willfully fails to furnish the return in due time, the tax officer may penalise with prosecution, however, such instances are rare."
Interest on due amount of tax
If one hasn't filed on time and has due amount of tax, then interest under Section 234A will have to be paid. Nangia says, "Such interest is levied for delay in filing the return of income. In other words, if the taxpayer files the return of income after the due date, simple interest of 1 per cent per month or part of a month is levied." And the calculation of interest starts from the very next day from the due date. Surana says, "The interest applies from the date immediately following the due date, ending on the date of filing of return. For the purpose of this calculation, part of the month shall be considered as whole month."
Lesser time for those who file late returns
Starting FY 2015-16, the rules for filing belated returns have changed. Nangia informs, "In any one financial year, a taxpayer can file returns for previous two financial years. Therefore in FY 2016-17, a taxpayer can file tax returns for FY 2014-15 and FY 2015-16. Hence any return which pertains to FY 2013-14 and before is time-barred and under no circumstances can be filed. A notable change brought about during Budget 2016 is the reduction of time period for filing of belated income-tax returns. The period of filing belated returns has been reduced from two years to one. Accordingly, from the next assessment year, i.e., FY 2016-17, taxpayers will need to file returns before the end of the relevant assessment year." So, make it a habit to file I-T returns on time as the window to file belated returns will be less now.
No time to revise
If you want to change some figures in your tax return (FY 2015-16), you can do so by filing a 'revised return', provided you had filed on time. Revision of a belated return is not allowed. So if you haven't taken credit for a deduction under chapter VI (Section 80C, etc.), there's no way I-T Department will allow that now. Also, if the Department points a mistake, you may be asked to pay a penalty.
Refund without interest
If you are eligible for a tax refund, you will get it but only from date of filing of belated return. By filing a belated return, one loses on a portion of the interest on the tax refund amount. The I-T Department pays interest of one-half per cent for every month calculated from April 1 of the assessment year. Even the refund process may get prolonged. Surana adds, "Late filing of return of income would result in delayed processing of refund."
Unable to set-off losses
Losses incurred can be carried forward to future assessment years to be set-off against future gains. However, if you have sustained a loss in a financial year, which you propose to carry forward to the subsequent year for adjustment against subsequent year(s) positive income, you must make a claim of loss by filing your return before the due date. Surana says, "Loss (except house property loss) can be carried forward and set off in future years only if the return has been filed within the due date of filing return of income."