Most of us are familiar that as individuals it is our privilege and our duty to file income tax returns. If you have total taxable income above Rs.2.50 lakhs then you are bound to file e-returns on the Income Tax website using your PAN number as the user name. Whether you actually have a tax liability or not is immaterial. You may not have tax liability eventually for 2 reasons. Firstly, you may not have any tax payable after consider the impact of your exemptions and deductions. Secondly, if you are earning regular salary from your employer then the employer will take on to deduct tax before paying your salary. This is called TDS which the employer deducts and deposits with the Income Tax Department under your PAN.
Filing of returns must be completed before July 31st each year for the financial year ended March 31st of the same year. That means you have 4 months after the completion of the financial year to file your returns with the IT department. Despite that, you may miss out filing your IT returns for a variety of reasons. What happens if income tax return is not filed on time? Is there a penalty for late filing of income tax return? More importantly, what is the late filing of income tax consequences, apart from the monetary penalty. Let us get a clearer picture..
If you have no tax dues then you can file belated returns..
Let us assume that you have no additional tax to pay and there is zero liability to pay tax. In this case if you missed the tax deadline of July 31st then you can still go ahead and file the returns till March 31st of the said year. For example, for the financial year 2016-17, which ends on March 31st 2017, your tax filing deadline would be July 31st 2017. In case you missed filing your tax returns you can still file your tax returns by March 31st 2018, which is the last date of the relevant assessment year. This is a departure from the old rules. Till 2016, you were allowed to file delayed returns up to the next assessment year. In the above example, you would have been permitted to file delayed returns till 31st March 2019. That is not possible any longer.
If you have refunds to claim and you file belated returns..
If you have no tax payable and no refund to claim then the late filing may not really be a hassle. But, what if you have a tax refund claim? Your employer may have deducted excess tax due to a delay in submitting investment proofs. Now you need to claim this excess tax deducted as tax refund. What happens in case you filed delayed returns? There is a subtle loss for you. Normally, if the tax refund is not paid to you within the stipulated time frame then the Income Tax Department pays you interest for the period of delay. If your return filing is delayed then you are not entitled to the interest on refund irrespective of the delay. Of course, your tax refund will still come to you.
If you have carry-forward losses and you filed belated returns..
This is a slightly trickier situation. Normally, the Income Tax Act allows you to carry forward capital losses for a period of 7 years to set off against future profits. But this carry-forward facility will not be available if you are filing delayed returns. So if you have a short term loss on shares this year and if you file delayed returns then you cannot carry forward this loss to the next year. Be careful of this part as you may lose out on some genuine benefits.
If you have outstanding taxes and you filed delayed returns..
This is a slightly more unfavourable situation for you. You could have tax outstanding due to some income for which TDS has not been deducted or for some deduction which did not materialize. If you have tax outstanding and you still file delayed returns then you will have to pay an interest at the rate of 1% on the outstanding. For example if your outstanding tax is Rs.50,000, then 500 per month will be charged as interest on outstanding tax each month. In addition, the assessing officer also has the discretion of levying penalty up to Rs.5,000 for delayed filing despite having tax outstanding. While this penalty is currently discretionary, it will be compulsory from the next assessment year onwards.
Delayed filing is not only expensive but also creates a black mark on your tax filing records. Even when you apply for loans or visas, delayed filing of returns information can act as a negative score against you. It is always better to file your tax returns on time each year. In fact, you should also ideally avoid the last minute rush and file your returns well in advance of the stipulated date of July 31st!