Let us understand that here we are covering two distinct items altogether. The first pertains to your investment declaration limit. Your employer will require you to declare all your tax-related investments by December and all proofs need to be submitted latest by the first week of February. What should you do if you missed income tax deadline for declaring investments?
The second and more important question pertains to what happens if income returns is not filed on time? This is slightly more complicated than forgetting to submit your investment proofs. Let us look at the implications here..
What if you forgot to declare proofs as per your investment declaration limit?
If you are working for an organization, then your Finance & Accounts team will require you to declare the indicative investments at the beginning of the year provide the final list of tax-related investments by December and submit all proofs by February. But you may have missed out due to a variety of reasons. For example, your bank may have sent your home loan certificate late or you may have just missed out the official deadline for submitting proofs. This is not too difficult. Your employer will go ahead and deduct the tax from your salary assuming that non-evidenced investments were not made. While filing your returns you can calculate your revised tax payable after considering the pending investment proofs. As a result, your Form 16 tax will be higher than the actual taxable payable. When you file your online returns, you can file for a refund. Make it a point to keep authentic proofs of such investments ready with you in case the IT department asks for it. Once the IT department is satisfied, they will credit the refund to your bank account. Similarly, there are specific cases like capital gains and donations under Section 80G which your employer will not consider. In such cases, you anyways need to file for refund subsequently.
But, what if you missed income tax deadline itself..
For the financial year ended March, you need to statutorily file your Income Tax returns by July 31st each year. Occasionally, the government may extend these dates but please do not count on it. Make it a point to file your returns at least a week before the deadline of July 31st. But on occasions in the midst of your work pressure you may forget to file your returns altogether. What are the penal provisions in this case? What happens if income tax return is not filed on time? There are 4 distinct scenarios you need to understand as the implications are different in each case..
Delay in filing returns when there is no tax payable and no refund claimed..
If all the dues payable by you are already deducted by your employer in the form of TDS, then you really nothing have much to worry. Even if have missed out the July 31st deadline, you can still file you returns before the end of the relevant financial year. For example, if for the financial year 2016-17 you did not file returns by July 31st 2017 then you still have time till March 31st 2018 to late file your returns. Since there is no tax due from your side, there is no penalty or interest that you will be charged. But to the extent possible this situation is best avoided.
Delay in filing returns when there is refund claimed from the IT department..
The case can get a little trickier if you are claiming refund. Remember, if you are claiming refund, then you must ensure that you file returns well before the stipulated date. In the event of delay in filing returns, you will still be paid the refund. However, the IT department is not obliged to pay you any interest for delay in payment refunds. To the extent you lose out by not filing your income tax returns before the stipulated date in the event you are claiming refunds.
Delay in filing returns when you have short term losses, speculative losses etc..
Let us just add one more complication to our case study. Here we assume that you have short term losses during the year. What happens in this case? It is very important to remember that in case you file delayed IT returns then you are not eligible to set off the capital loss during that year or even to carry forward these losses. That can be a fairly huge hit for you in financial terms. Hence if you have any speculative income/loss or any short term capital gains or loss please ensure that you file your returns on time. Otherwise the missed income tax deadline in India can impose a huge opportunity cost on you.
What if you file returns late and there is also tax payable?
This is the scenario that is best avoided as it can not only lead to imposition of interest and penalty on you but your returns could also be identified for more detailed scrutiny. It may also have a bearing on future income tax returns filed by you. When the returns are not filed on time despite having taxes outstanding then the IT department will impose penal interest of 1% per month from the date on which the tax becomes due. The IT department also can impose fines at its discretion if it believes that the delay was intentional. This is a scenario best avoided.
Remember, missed income tax deadline in India has a huge cost. What happens if income tax returns are not filed on time is that there is a financial and reputational cost to it. It is best avoided!