What is the penalty for not filing Income Tax Returns
Filing of Income Tax Returns is the individual responsibility of every tax-payer. The Income-tax Department in India has rules for filing returns under the Act of 1961. There can be penalties and other effects while filing returns late according to the Act. So let's break it down step by step so everyone would understand the importance of timely filing.
What Happens If You Don’t File Your Income Tax Return?
If you file late return the
consequences as under:
Late Fees Under Section 234F
You could also face a late fee, which is charged under Section 234F if
your return is filed after the deadline.
For returns filed after the due date but before 31st December of the
assessment year, the penalty could be Rs. 5,000.
In case the return is filed after December 31st, then penalty increases
to Rs. 10,000.
But, if your total income is less than Rs. 5,00,000, then the maximum
penalty is capped at Rs. 1,000.
Interest on Unpaid Tax Under Section 234A
You will be liable to 1% per month or part of
a month as interest on the amount that is paid if you have outstanding taxes
and you fail to file the return on the due date under Section 234A.
For instance, suppose you have Rs. 50,000 tax payable. If you file your
income tax return after three months, then the amount of interest that you pay
is Rs. 1,500, that is, 50,000 x 1% x 3 months.
Best Judgment Assessment Under Section 144
If you do not file your income
tax return, even after reminders, then the Assessing Officer can action to make
an estimate of your income and decide the tax payable under Section 144.
This is known as a "Best Judgment Assessment" and might lead
to increased tax liability because exemptions and deductions you may have
claimed will not be considered.
Prosecution Under Section 276CC
If you persistently fail to file returns and your tax liability exceeds
certain thresholds, you could be prosecuted under Section 276CC.
Imprisonment may range from three months to seven years according to the
degree of severity of the case.
Loss of Carry-Forward Benefits
In case you fail to file your income tax
return within the stipulated time, you might lose the benefit of carrying
forward certain losses, like business losses or capital losses, to be set off
against future/next year’s income. Sections 70 to 80 of the Income Tax Act
cover this.
Relevant Rules and Notifications
Generally, the due date for
filling up income tax return for individuals is July 31st of the assessment
year. For businesses needing audit, it is October 31st for filling up income tax return.
As per CBDT Circular No.9/2021, relief measures may sometimes be provided during exceptional
circumstances like pandemics, extending the filing deadlines.
Notifications under Income
Tax Rules 12 reveal all the forms and how their returns are filed.
Example of Penalty Calculation
For example, Ramjeet is a
salaried individual and his total income of Rs. 7,50,000 for the financial year
2023-24. He has taxes amounting to Rs. 20,000 unpaid as of the due date (July
31, 2023). He files his return on November 30, 2023. Here’s what he’ll face:
Late Fee:
Interest:
He will pay
interest under Section 234A @ 1% per month for four months (August, September
and November):
Interest may be
charged= 20,000 x 1% x 4 = Rs. 800.
Therefore, total
penalty and interest will be in amount to Rs. 5,800.
How to Avoid Penalties
1. File your returns on or
before the due date.
2. You must pay any tax
owed before you file.
3. Simplify the process and
avoid delays by using the e-filing portal.
4. If you cannot file on
time, file a late return as soon as you can.
5. Seek the advice of a tax
advisor on deductions and exemptions to minimize liability.
Benefits of Timely Filing
Some advantages of filing your income tax returns in time are the
following:
Easier Loan Approvals:
Banks and other
financial institutions usually demand a copy of ITR for the processing of loan
applications.
Avoidance of Notices:
Filing returns
in time saves you from scrutiny by the Income Tax Department as well as
notices.
Recovery of Refunds:
When you have a
refund pending, filing in time accelerates the processing and gives you the
money.
Building Financial Credibility:
Filing
regularly establishes a record of your financial discipline, which can be a
good point for future transactions.
Compliance with the Law:
Filing within
time reflects that you are a responsible citizen abiding by the tax laws of the
country.
Conclusion
As above "What is the penalty for not filing Income Tax Returns", we can say that Filing your income tax
returns timely is not only a legally compliant activity but also is kept in
good standing at the Income Tax Department as you avoid unnecessary penalties
due to late filing. Doing it on time helps avail benefits of tax, which further
reduces stress and provides proper financial organization. Setting reminders
for important deadlines with timely help from professionals involved should be
done.