Paying taxes and filing tax returns on time is every taxpayer's responsibility. However, it is interesting to note that this has benefits for the taxpayer too and not filing returns or delaying them beyond the due date can have repercussions. Following are some of the negative implications of delaying the return-filing process or avoiding it.
Missing the tax-filing deadline may lead to penal consequences or receiving a notice from the income tax department. Your tax liability may also increase since you may have to pay certain prescribed penalties.
A taxpayer is liable to pay advance tax if the expected tax liability for the year exceeds Rs10,000. Advance tax needs to be paid in four instalments, which are due on 15 June, 15 September, 15 December and 15 March. If you do not pay advance tax, make a short payment or delay in filing the income tax return; you are liable to pay penalties as mentioned below.
Interest for deferment of advance tax: This interest is payable at 1% per month for delay in payment of advance tax on quarterly basis. This is payable on the amount of quarterly shortfall, starting from the date on which the advance tax was due.
Interest for default in payment of advance tax: This interest is also payable at 1% per month or a part thereof on the amount of tax due as on 31 March of the financial year till the final payment.
Interest for delay in filing tax return: This is payable if you file the tax return after the due date. It is payable on the net taxes due as on 31 March of the financial year. It is chargeable from the first day (usually, 1 August for individuals) following the due date (which is usually 31 July).
There is a way to avoid these penalties. Tax filing cannot be done unless a person deposits his tax liabilities to the government on a regular basis. He can, therefore, pay his taxes within the due date and file his tax returns on time. This will save him from having to pay additional interest on the same.
If a person fails to furnish his tax returns even after the expiry of 1 year of the financial year for which income tax return was to be filed (i.e., before the end of the relevant assessment year), the assessing officer may impose a discretionary penalty of Rs5,000, under section 271F of the income tax Act. But this position will change starting FY 2017-18. According to Budget 2017, if a person fails to file his tax return by the due date of 31 July, he will have to pay a compulsory late filing fee of Rs 5,000. Further, if he delays filing the return beyond 31 December of the assessment year, he will be liable to pay a late filing fee of Rs10,000. In the case of small taxpayers with the income up to Rs5 lakh, the maximum fees shall not exceed Rs 1,000.
It's important to note here that the discretionary penalty will now be replaced by mandatory late filing fees. Therefore, delaying the return filing can hurt you badly.
This penalty can be avoided if you are able to provide the assessing officer sufficient convincing reasons for the delay. However, under the proposed amendment, the assessment officer will have no discretion to waive the late-filing fees and therefore the only way to avoid this is to file the tax return before the due date.
Prosecution can also take place in rare and extreme cases, if the assessing officer finds that the taxpayer has wilfully failed to furnish the tax return within the due time. The penalty in such cases may be any one of the following:
(i) If the tax payable is less than Rs 25 lakh, the taxpayer may have to face a minimum imprisonment of 3 months and up to 2 years;
(ii) If the tax payable is more than Rs 25 lakh, the taxpayer may have to face a minimum imprisonment of 6 months, up to 7 years.
Generally, tax officers give the assessees sufficient notice and time to comply with the filing requirement and the taxpayers should not ignore any notice from the income tax officer. It is advisable that they pay the taxes and file the tax return within the time allowed by the officer.
Apart from penalties, there are other losses to that you would suffer by not filing on time.
The income tax Act provides you an interest at the rate of 0.5% per month on the excess tax you may have paid. Interest in such a case shall be allowed for a period starting from 1 April of the assessment year, to the date on which the refund is granted. No interest is payable for the period attributed to the delay in filing the tax return beyond due date, by the taxpayer.
You can carry forward your losses under various heads of income that you may have incurred in the financial years, to the next 8 assessment years. These losses can be used to set-off future gains and can thus result in savings. You must file your tax returns and claim the related losses before the due date (31 July or 30 September, as applicable to you).
If you file a late return, you cannot revise it in case of any error or omission; you will lose the interest amount that you may earn on the refund under Section 244A.
Tax return filing is a process that needs to be done regularly to establish a good record. Often, people file returns for more than 1-2 financial years in a single year in order to comply with bank or visa application requirements. This may, however, lead the tax authorities to form a bad impression, that you haven't been regular in filing income tax. Other benefits of filing return on time include getting faster refunds, smooth processing of loans, and even visa processing.
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