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Disadvantages of delay in Filing Income Tax Return

  1/12/23 10:05 AM

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If you have taxable income that exceeds the basic exemption limit, you are required to file an Income Tax Return (ITR) each year. The deadline for filing your tax return depends on your legal status as a taxpayer. If you are a company or an individual who is required to undergo a tax audit, your deadline for filing is September 30. If you are not in either of these categories, your deadline is July 31. Failing to file your income tax return on time may disqualify you from certain tax benefits outlined in section 80C and 10(10D) of the tax code and can result in severe consequences for you as a taxpayer. 

Some possible repercussions include:

  • Carry forward of losses: As per the Income Tax Law in India, carry forward of losses refers to the ability of a taxpayer to carry forward their losses from one financial year to the next, and offset them against their taxable income in the future. This means that if you incur any losses in a particular financial year, you can reduce your tax liability in future years by carrying forward the losses and applying them to your taxable income in those years.
    This can help you as a taxpayer to reduce your overall tax burden and improve financial situation. The rules and regulations regarding the carry forward of losses vary depending on the type of loss and the type of taxpayer you are. It is important for to consult with a tax professional or refer to the relevant tax laws to understand your specific rights and obligations regarding the carry forward of losses. However, if you fail to file your return of income before the due date, then such losses cannot be carried forward.
  • Deductions under Chapter VI A: Theserefer to certain expenses and investments that are allowed to be deducted from an individual's taxable income. These deductions are aimed at promoting various social and economic goals, such as encouraging savings, promoting education and health, and supporting charitable causes. Some examples of deductions under Chapter VI A include investments in certain specified savings and investment instruments, such as life insurance premiums, pension funds, and equity-linked savings schemes; expenses on the education of the taxpayer or their children; and donations to certain approved charitable institutions. The rules and eligibility criteria for these deductions are specified in the Income Tax Act and may change from time to time. It is important for taxpayers to consult with a tax professional or refer to the relevant tax laws to understand their specific rights and obligations regarding deductions under Chapter VI A. However, the same cannot be claimed if the taxpayer does not file his return of income within the specified due date.
  • Interest under Section 234: This refers to the interest charged by the tax authorities on any outstanding tax liability. This provision applies when an individual or business fails to pay their taxes by the due date, or if they pay their taxes in instalments but default on any of the instalments. In such cases, the tax authorities may charge interest on the outstanding tax liability at the rates specified in the Income Tax Act. The interest charged under section 234 is in addition to any penalties or other charges that may be levied for failing to pay taxes on time. The rates of interest charged under this provision may vary depending on the type of taxpayer and the duration of the default. It is important for taxpayers to pay their taxes on time to avoid being charged interest under this provision.
  • Penalty: In case of delay in filing an income tax return without a reasonable cause, a penalty of Rs. 5,000 may be levied. The Assessing Officer does have the power to waive this penalty, but they may do so only after providing the taxpayer with a reasonable opportunity to be heard. It is always better to adhere to the rules and file your tax returns on time to avoid the possibility of being charged a penalty and having to go through the hassle of a hearing. However, there may be some minor variations in the specific rules and regulations regarding the imposition of penalties for late filing of tax returns, depending on the specific circumstances of the case and the laws in effect at the time.
  • Rate of Interest u/s 234C: According to Section 234C of the Income Tax Act, rate of interest and conditions are applicable if advance tax instalments are delayed. Every individual drawing an income is required to pay advance tax every quarter of the financial year. In case you default at this, interest is levied at 1% per month, that is, a simple interest at 1% per month.
  • Loss in interest on refund: Assesses are eligible to claim a refund if the amount of tax they have paid is higher than their tax liability. The income tax authorities are required to process and pay any refund due to the taxpayer within the time limits specified in the Income Tax Act. In case of delay in the payment of a refund, the tax authorities are liable to pay interest on the amount of the refund. If a tax return is filed after the due date, the interest on the refund may be reduced for each day of delay. However, there may be some minor variations in the specific rules and regulations regarding the payment of refunds and the calculation of interest, depending on the specific circumstances of the case and the laws in effect at the time.
  • Other implications: Tax returns prove to be of prime importance while considering tax payer’s creditworthiness. Tax returns are mandatory requirements for any loan application, visa application, etc. Hence, non-filing or delayed filing of income tax return proves to a hindrance for the assessee in more ways than one.

Also, it is important to note that delay in filing of income tax returns can be condoned by the assessing officer provided there is reasonable cause for delay.

To conclude, availing tax benefits u/s 80C and 10(10D) of the Income Tax Act, 1961 is beneficial; however, you need to have a proper tax planning along with filing tax returns within the given timelines. Else you will have to face the above-mentioned consequences. Be it anything, life insurance, or mutual fund taxation or any other tax advantage funds; you need to understand the tax structure in India first. Sometimes, the maturity benefits may not be eligible, but tax deduction u/s 80C is always there for premiums paid towards the policy.


Swati Tumar - Travel & Finance Writer

Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.

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