Every year, individuals and non-individuals alike (to whom tax audit is not applicable under the Income tax Act 1961, (the IT Act), are required to file their income tax returns (ITRs) on or before the 31st of July (subject to any extension in the due date by the Central Board of Taxes). For every financial year, the ITR is required to be filed by the 31st July in the subsequent year. For instance, for financial year 2021-22, the ITR would be required to be filed by 31 July, 2022.
If you’re an individual with no income or income that’s lower than the exemption limit, you won’t have to file any income tax returns. However, if you’re an individual whose income is above the exemption limit, then it is extremely important to file your income tax returns on time. Not doing so can lead you into a lot of trouble. Continue reading to find out more about what would happen if you delay filing your ITRs.
Impact of Delay in Filing for Income Tax Returns
The impact of any delay in filing your ITRs would be profound. You would not only have to contend with an ITR delay penalty levied on you but would also face a few other consequences as well. Let’s take a more in depth look at what is likely to happen.
As per section 234F of the IT Act introduced in the financial year 2017-18, an ITR delay penalty of Rs. 5,000 would be levied on individuals who delay filing their income tax returns beyond 31st July, but file them before 31st December. The penalty will be doubled to Rs 10,000 for returns submitted after the 31st of December of the relevant assessment year. Small taxpayers are given a break: the IT department has declared that if total income does not exceed Rs 5 lakh, the maximum penalty for late filing is Rs 1,000.
2. You wouldn’t be able to set off losses
A penalty isn’t the only consequence of delaying the filing of income tax returns. The provisions of the IT Act allow you to set off losses that you incur in a year against profits that you make in subsequent years subject to the fulfilment of certain conditions. This allows you to reduce the impact of income tax.
However, the benefit of carrying forward and setting off losses will no longer be available to you if you fail to file your income tax return within the due date. This can lead you to missing out on reducing your income tax liability during the subsequent years.
3. Liable to pay interest for delaying the filing
In addition to penalty obligation, the Income Tax Department will also levy simple interest for not filing the ITR before 31st July at the rate of 1% (calculated on the tax liability) for each month of delay (from the original due date of filing ITR) according to the provisions of section 234A of the IT Act.
For instance, if your tax liability is Rs. 10,000 and you file your ITR only on January 31, 2022 as opposed to July 31, 2021, you would have to pay 1% of Rs. 10,000 for each month of delay as interest. This would come up to Rs. 600.
4. A delay in getting income tax refunds
If you’ve paid more tax to the income tax authorities than your actual tax liability, you are eligible to get a refund of the excess tax paid. However, for claiming the refund, Filing of Income Tax Return is mandatory. Therefore, the longer you delay filing the ITR, the longer it would take to get the tax refund and the consequential impact of the notional interest accrued thereon .
As you can see, there are multiple consequences that you would have to face, with the penalty on delayed filing of ITR being just one of them. Therefore, it is a good idea to make sure that you file your ITR well within the due date.
When filling your ITR, remember to use an Income Tax Calculator to do a simple check of whether the tax liability disclosed in the ITR is correct. This will ensure that you don’t make any mistakes while filing the return.
Here’s something that you should know. Although the general due date for filing income tax returns is the 31st of July of each year, the Income Tax Department occasionally tends to extend the due date depending on the existing circumstances. In such cases, the extended due date would apply.