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January 13, 2021

How much penalty do you have to pay if you missed filing ITR by due date?

by CA Shivam Jaiswal in Income Tax

How much penalty do you have to pay if you missed filing ITR by due date?

The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. The lockdown though necessary has led to a disastrous impact on the economy. With an ever-increasing corona virus cases, lockdown was considered as an only solution to flatten the curve. However, the measures which were implemented to avoid a human disaster, have in turn led to the birth of several issues such as unemployment, recession, hindrance to economic growth, financial instability and so on. The  Government of India announced a variety of measures to tackle the situation, from food security and extra funds for healthcare and for the states, to sector related incentives and tax deadline extensions.

An income tax return (ITR) is basically a document that is filed as per the provisions of the Income Tax Act, reporting one’s income, profits and losses and other deductions as well as details about tax refund or tax liability. The deadline for filing Income Tax Return for corporate and other assessee’s who are to get their accounts audited under Income Tax Act 1961 or under any other law for the time being in force is 30th September and for others, it is 31st July every year as have been prescribed under the Act.With the ongoing COVID -19 pandemic a lot of income tax due dates were extended.As a result, instead of July 31, 2020, the due date of filing return was first extended up to November 30, 2020, then to December 31, 2020 and finally to January 10, 2021.

Is there any penalty if one filestheir income tax returns after the due date?

If a taxpayer fails to the file the income tax return within the prescribed time limit, he would be liable to pay late fees for such default as per provisions of section 234F of the Income Tax Act.

Section 234F gets attracted if the following conditions are satisfied:

  • The assessee is mandatorily required to file the income tax return as per the provision of section 139; and
  • The assessee has either not filed or has delayed in the filing of the said income tax return.

What are the Late Fees and Penalty under Section 243F?

  • One important difference between missing the ITR filing deadline last year and missing it this year (i.e., 10th of January) is that you will have to pay a penalty of Rs 10,000 this time, unlike last year when the penalty for belated ITR filing within a few months of missing the deadline was only Rs 5000.
  • However, this penalty or late filing fee will only be applicable if your net total income (i.e., income after claiming eligible deductions and tax exemptions) exceeds Rs 5 lakh in the financialyear for which the ITR is being filed.
  • However, if taxpayer’s total income does not exceed Rs 5 lakh, then the maximum penalty levied for delay will not exceed Rs 1000.
  • The normal deadline to file ITRs for an individual (whose accounts are not required to be audited) is July 31 every year.
  • If you miss the deadline and file a belated return by December 31 of the same year, then the late filing fee is Rs 5000.
  • If you file, the belated return after December 31 but on or before March 31 of the relevant assessment year then the late filing fee is Rs 10,000.
  • As the time period between July to December 31 would already be over once the new deadline of January 10, 2021, is missed therefore the higher penalty of Rs 10,000 would automatically become applicable.

What are the other effects of not filing ITR before the due date?

Carry forward of losses not allowed

  • Set off of losses means adjusting the losses against the profit or income of that particular year. After making the appropriate and permissible set offs, there could still be unadjusted losses.
  • These unadjusted losses can be carried forward to future years for adjustments against income of these years.
  • However, unless you file your ITR, you cannot recompense your expenses/losses in the previous financial year to the current.
  • If tax returns are not filed on time, unadjusted losses (with some exceptions) cannot be carried forward to future years.
  • Hence, to ensure that the losses are carried forward for future adjustment, a tax return would be required to be filed

Liable to interest on tax liability

  • If you don’t file your ITR, the belated return could lead to extra interest on monthly basis for the remaining tax payable by you.
  • Interest under section 234A is levied for delay in filing the return of income
  • Taxpayer will be liable to pay simple interest at 1% per month or part of a month for delay in filing the return of income from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income, or in case where no return has been furnished, on the date of completion of the assessment under section 144.

Interest on refund u/s 244A may be lost

According to Section 244A, where refund of any amount becomes due to the assessee, he shall, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:

  1. where the refund is out of any tax paid by way of advance tax or treated as paid, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of 1.5% for every month or part of a month comprised in the period from the 1st of April of the assessment year to the date on which the refund is granted
  2. in any other case, such interest shall be calculated at the rate of 1.5% for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted.

The taxpayer will not be entitled to any interest on refund, if the proceedings resulting in the refund are delayed for the reasons attributable to the taxpayer or the deductor (whether wholly or in part). In such a case, where the taxpayer has not filed ITR on time; interest on refund u/s 244A may be lost as delay in filing is attributable to the taxpayer for the period by which they had filed late return.

Best Judgment Assessment under Section 144

Assessee will be liable for best judgement assessment under Section 144 of the Income Tax Act. According to Section 144, the Assessing Officer, after taking into account all relevant material which he has gathered, is under an obligation to make an assessment of the total income or loss to the best of his judgement and determines the tax payable by the assessee in the following cases:-

  1. where any person fails to make return under Section 139(1) and has not made a return or revised return under Section 139(4) or Belated Return under Section 139(5)
  2. where any person:-
  3. fails to comply, with all of the terms of a notice issued under Section 142(1); or
  4. fails to comply with directions issued under Section 142(2A) for getting the account audited.
  5. where any person, having made a return, fails to comply with all terms and conditions of a notice issued under Section 143(2)

Liable to receive notice of prosecution under Section 276CC

  • The offence under Section 276CC, prima facie, stood constituted upon failure on the part of the assessee to furnish the return of income for the assessment year in question within the period prescribed in law.
  • A person can be proceeded against for willful failure to furnish ITR under section 276CC of the Income Tax Act.
  • Such proceedings can result in punishment by way of imprisonment and fine.
  • The type of imprisonment and the term of imprisonment is linked to the tax that would have been evaded by such person if the failure had not been deducted.

It is always considered a prudent action to file one’s income tax return on time. More than any other benefit, being on the right side of law helps. It is recommended to keep the income tax department informed about one’s income and taxability. This communication is only possible when one files their ITR.

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