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What if you do not declare your tax investments and file returns on time

07 Sep 2023

Filing your income tax returns is a vital part of your financial obligation and you must take this activity seriously. However, there are many instances when you may have genuinely forgotten either to file your tax returns entirely, or declare your income in terms of your investments while filing returns. 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 the income tax deadline for declaring investments? 

The second and more important question pertains to what happens if income returns are not filed on time? You should know that your tax declaration is crucial and not only should it be done, but it must be done in a timely manner as well. Declaring your income in a tax declaration 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?

Your investment declaration consists of your investments that you may hold and made in the course of the year for which you are filing your tax returns. These may include any investments such as a loan taken for purchasing a home, or any other personal investments made. 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. You could have also misplaced your documents of proof, and forgotten to request for fresh documents. 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 tax 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 a refund subsequently.

The importance of the income proof submission

The income proof submission must be done by an employee so that employers can deduct an appropriate amount of tax from your income. You already know that an amount for tax purposes is deducted from your salary. However, if you wish to reduce this tax deduction, you, as an employee, must provide your employer with an exact configuration of other investments that come under tax deductions. These are efforts to save you paying any taxes and can reduce the amounts of tax deductions made. You must have documents to support these investments, and these may include your leave travel allowance (LTA), house rent allowance (HRA), and any medical reimbursement along with any other entitlements.

You may have the following income proofs that you need to submit:

  • Any investments which fall under Section 80 C, or ELSS investment proofs
  • Any receipts pertaining to life insurance, plus health insurance premiums
  • If you have made any donations, you need to have receipts of those
  • Receipts of rent for any rental accommodation in order to claim your HRA
  • Travel receipts or amounts spent on transportation for claiming deductions under LTA

But, what if you missed the income tax deadline itself…

Filing your Income Tax Returns might be a bane to deal with on a yearly basis, but it has to be done within a time limit. You must make sure to file your returns before the IT Return last date or due date. Naturally, if you have investments other than your salary (which the majority of individuals who pay tax do have), you will be taken to task by the government in terms of penalties to be paid. The whole idea of paying tax is to save whatever you can, and incurring penalties just puts you through unnecessary financial burden and stress. 

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 the 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 have nothing to worry about. Even if you have missed out the July 31st deadline, you can still file your 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 a refund claimed from the IT department…

The case can get a little trickier if you are claiming a refund. Remember, if you are claiming a refund, then you must ensure that you file returns well before the stipulated date. Claiming a refund is an obligation on your part, and to get this, you have to file your returns in a timely manner. Following rules of the IT department is mandatory in order for you to be issued your refund. 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. In order to be a compliant citizen, your proof of investment for income tax and filing returns on time is important. 

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.

What is an income tax declaration? The Importance of timely tax filing

An income tax declaration represents an entire list of each tax-saving investment that any individual (an employee) is committed to make in the year for which the tax is assessed. 

No individual should have to pay any extra charges and you will certainly have to if you do not file your tax returns on time, according to Section 234 F of the Income Tax Act. For any average individual, penalties may prove costly. Moreover, if you fail to file your returns appropriately, you miss out on opportunities to avail loans in the future as your tax documents are required for eligibility. Remember, missed income tax deadlines in India have 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.


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