Did you miss your deadline of filing the tax return by 31st July? (This time extended till 4th August.) Most of us pay the taxes before the deadline of 31st March, but when it comes to filing the return we are lazy people and many times we make mistakes in hurry. However If you have missed the deadline to file your Income Tax Returns, there is no need to panic, as when it comes to filing of your income tax returns, tax laws are not so stringent. In this article, tax implication will be explained considering all the scenarios. You being a salaried person may have missed the filing return if you have an income on which all the taxes have been deducted or have been deposited by way of advance tax, no need to panic. There should be no additional penalty or interest for not filing the return by July 31, 2010, provided you act now. You still have the time to file your return of income for the assessment year 2010-11 till March 31-2012. Tax returns may be furnished any time before the expiry of two years from the end of the financial year in which the income has been earned. But, after the first-year breather come penalties. That is, if returns for F.Y. 2009-10 i.e., A.Y. 2010-11 are filed after March 31, 2011, there will be a flat penalty of Rs 5,000. Importantly, there should not be any tax liability. However, if you give a reason for not filing on time, like accident, hospitalization or deputation abroad, the department may waive the fixed penalty. But, if there is any outstanding tax to be paid, you may have to pay 1 per cent per month on the amount.
In addition to penalty there are two simultaneous interest charges being levied on you under Sections 234(A) and 234(B). Section 234(A) deals with delay in filing returns and imposes an interest of 1 per cent a month from August of the assessment year.
Section 234 (B) deals with delay in depositing advance tax and charges 1 per cent interest per month starting April 1, 2010, till such time the outstanding amount is paid. “Section 234(B) is applicable only to those who have an outstanding tax liability exceeding Rs 10,000.
Rules
- However, persons who have any Business or Capital loss to be carried forward may have a cause to worry as the said loss would not be allowed to be carried forward to next year if the return of income is not filed before the due date.
- If you still have any outstanding taxes to be paid (after deducting TDS and Advance taxes paid, if any) you would be liable to pay simple interest @ 1% per month or part of the month, on the tax payable commencing from the date following the due date till the date of filing the return.
The Implications of not filing the income tax return on time and the steps to correct the situation
Scenario 1# You do not have outstanding tax liability
“In case you have already paid your taxes before 31 March, 2010, but could not file the return within the due date, you may file a return at any time before the end of one year from the relevant assessment year, simply put; for the financial year 2009-10 return can be filed at any time before 31st March 2012, however you may invite a tax penalty of Rs 5,000 u/s 271F of income tax act even if all your taxes have been paid if the same return is furnished after 31st March, 2011.
Scenario 2# You do have some Outstanding Tax liability
If you do need to pay any balance tax, there is some financial implication. The basic principle remains the same: The income tax return for a given assessment year can be filed any time till the end of that assessment year without any penalty. If it is filed after the end of the assessment year, there may be a lump-sum penalty of Rs. 5,000. On top of this, there is a penalty of 1% per month on the net tax payable u/s 234A.
Example:
Say, your income tax liability for the year is Rs. 40,000. You have TDS (Tax Deducted at Source) of Rs. 20,000, and you have paid an advance tax of Rs. 6,000. Thus, the remaining tax payable by you is:
Net Tax Payable = Income tax liability for the year – TDS – Advance tax paid
= Rs. 40,000 – Rs. 20,000 – Rs. 6,000
= Rs. 14,000.
Now there are two cases, which we have to consider
Case 1: File income tax return before the end of assessment year
Say you file your income tax return on 25th September, 2010. In this case, you would be filing your return 2 months late (partial months are considered as full months).
Final Amount = Net Tax Payable + Interest for 2 months at the rate of 1% per month Amount payable,
= Rs. 14,000 + (2% of Rs. 14,000)
= Rs. 14,000 + Rs. 280
= Rs. 14,280
Case 2: File income tax return after the end of assessment year
Say you file your income tax return on 4th June, 2011. In this case, you would be filing your return 11 months late (partial months are considered as full months). On top of this, you would be filing the income tax return after the end of the assessment year for which you are filing the return. So, in this case,
Final Amount = Net Tax Payable + Interest for 11 months at the rate of 1% per month + Lump sum penalty of Rs. 5,000
= Rs. 14,000 + (11% of Rs. 14,000) + Rs. 5,000
= Rs. 14,000 + Rs. 1540 + Rs. 5,000
= Rs. 20540
(Remember in addition interest u/s 234 (B) will be levied for delay in depositing advance tax @ 1 per cent interest per month starting April 1, 2010, till such time the outstanding amount is paid. “Section 234(B) is applicable only to those who have an outstanding tax liability exceeding Rs 10,000)
Additional Scenario
You have losses that you need to carry forward. This applies irrespective of whether you have any net tax payable or not. If you do not file the income tax return for a year by the due date, a loss for that year can not be carried forward. The only exception to this rule is loss from house property – this loss can be carried forward even if the IT return is not filed in time. Thus, if you have a loss from any of the heads of income (except for the head “Income from house property”), and you file your income tax return late, you would not be able to carry forward your losses. Thus, you would lose the benefit of set off of these losses against the income of the next year.
Disadvantages of filing a late return
As per Income Tax Department of India: “A tax return may be furnished any time before the expiry of two years from the end of the financial year in which the income was earned’. This means that if you earned your income during FY 2009-10, you may file a belated return anytime before 31st March, 2012”. But there are some disadvantages if you don’t file your returns on time. They are
- You will not be able to carry forward your Business loss (Speculation or otherwise), capital loss, loss due to owning and maintaining of race horses.
- Loss of Interest on refund: You may loose interest on refund u/s 244A specially in case if you are claiming a Major amount as refund.
- You cannot revise your return.
Conclusion
Not filing a return on time does have financial implications, especially if you have a net income tax payable and / or if you have losses to be carried forward. This can really hurt especially if the losses to be carried forward are significant. Therefore, your best option is to ensure that you file the income tax return by the deadline.” Better late than never” is the best policy when it comes to income tax return filing.
NOTE: Dear Friends the above article does not meant to encourage people for filing late return but only to make taxpayers aware about the provision of IT act and help them taking informed decision.
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