As the Financial Year (“FY”) draws to a close, it is time for taxpayers across the country to initiate their annual ritual of filing their income tax returns (“ITR”). As per reports, the total number of income tax returns filed during the Assessment Year (“AY”) 2022-23 reached 7.51 crores, which is a significant increase from 6.63 crores in AY 2021-22. And in the AY 2023-24, more than 8.18 crores returns were filed.
For the FY ended on 31 March 2024, the due date for individuals to file their ITRs falls on July 31, 2024. However, filing ITRs can be a time consuming process and may be particularly difficult for individual taxpayers to understand the various schedules and disclosures required to be made while filing their ITRs. Individuals find it difficult to collate all the necessary data and keep a track of the expenses incurred by them in the previous year at the time of filing returns and hence, there is a high possibility of missing the due date for filing returns. Thus, many individuals seek some extra time to file their tax returns and avoid any potential action from the Income tax authorities.
The Income-tax Department has provided taxpayers who have missed the original tax filing deadline with an opportunity to file a belated return before the end of the calendar in which the return was to be filed i.e., 31 December. Thus, The time limit for filing a belated return for AY 2024-25 will be 31 December 2024.
However, a tax-payer filing a belated return will be liable for a penalty amounting to Rs. 1,000 if the income in below Rs.5,00,000 and a penalty of Rs. 5,000 if the income is above Rs. 5,00,000 in addition to penalty in the form of interest and loss of certain benefits normally available to on-time filers. Hence, tax compliance becomes a legal obligation, and every taxpayer must prioritize responsible financial practice for a smooth and hassle-free transition. Here are more details about the implications of late filing of income tax returns and explore the options available for seeking extensions.
If you have incurred losses, like business and capital losses, they cannot be carried forward and set off in the subsequent years. However, an exception is available for losses from house property that can be carried forward even if you file your returns late.
Deductions/ Exemptions Disallowed: Deductions/ exemptions u/s 10A, 10B, 80-IA, 80-IB, 80-IC, 80-ID and 80-IE shall not be available if you delay ITR filing. These tax-saving benefits are allowed only if the ITR is filed before the original deadline.
A closer look at late filing penalties
According to rules notified under section 234F of The Income Tax Act, there is a late filing penalty for filing ITR post-deadline. The Income Tax Department has reduced the maximum penalty for late filing to Rs 5,000 from the previous cap of Rs. 10,000 since FY 2021. But that doesn’t mean taxpayers can take the deadline lightly because along with the late filing penalty, there are other charges and limitations imposed by the Income Tax Department on late filers of ITR. If your total income does not exceed INR 5 lakh, the maximum penalty for late filing will be capped at INR 1,000, providing relief to small taxpayers. Conversely, those with higher incomes may face the full Rs 5,000 penalty if they miss the filing deadline.
Losses carried forward is a missed opportunity
One of the significant consequences of late filing is the inability to carry forward certain losses to subsequent AYs. In case of losses incurred during the FY, such as losses from business or those losses that are capital in nature, failure to file ITR within the due date will deprive you of the opportunity to offset such losses against future income. Offsetting of losses help the taxpayer to reduce their tax liability in future assessment years. However, losses from house property can still be carried forward, even if the ITR is filed after the deadline.
Delayed refunds posing financial inconvenience
Assessees whose tax liability is lesser than the aggregate amount of tax deducted/ collected at source (“TDS/TCS”) from their income can claim a refund of such excess taxes deducted/ collected. But this refund can only be claimed if the assessee has filed their ITR. If the assessee misses the tax filing deadline and files their ITR belatedly, then the eligible refund payable to them by the Department will only be processed after the assessee has filed their returns. This delay in receiving refunds from the Department may become a financial inconvenience for the assessee since their eligible income is lying idle with the Department, thereby causing a delay in pursuing potential income earning opportunities or cash flow issues for the assessee.
Interest on unpaid taxes
In addition to penalties, late filers may also be liable to pay interest on unpaid taxes under Section 234A of the Income Tax Act for delay in filing of ITR. The interest rate is currently set at 1% for every month or part thereof, calculated from the day following the due date for filing the ITR. This interest charge serves as a deterrent against delaying tax payments and aims to ensure timely compliance.
Taxpayers entitled to receive government refunds for excess taxes paid must file their ITRs before the due date to expedite the refund process. Late filing can lead to significant delays in receiving refunds, causing financial inconvenience and potential cash flow issues.
Conclusion
In the complex web of tax compliance, timely ITR filing is essential. With the aforementioned guidelines in place, taxpayers can avoid unnecessary delays, penalties and interest charges. Besides, the Indian Income Tax Department’s efforts to streamline the process and provide relief to small taxpayers are commendable steps towards promoting a tax-friendly environment.
The adoption of digital platforms and simplified tax filing procedures may further encourage compliance and enhance the overall taxpayer experience. Taxpayers should stay informed about any updates or extensions granted by the authorities and plan accordingly to ensure a seamless and penalty-free tax filing process.