What if the Income Tax Returns are not field within Due Date

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    What if the Income Tax Returns are not field within Due Date

Tax compliance deadlines have witnessed numerous changes due to pandemics Corona-19. Almost all the compliance’s dates are extended, re-extended and revised. The due date of filing Income Tax Return (ITR) for the FY 2019-20 has also been extended to 31st January’2021.

There are a lot of disruptions and inconveniences which taxpayers are facing in complying with the extended timelines. Even a record number of representations has been done by various associations & organizations for date extensions. The most common question which is raised is, what if the return is not filed within the due date? Taxpayers must note that filing return within the due date is advisable & advantageous. Belated or late filing not only have cost & consequences in terms of monetary penalty & fine but also in terms of denial of various benefits & incentives.

Under the Income Tax Act-1961, every person whose income exceeds the Basic Exemption Limit (BEL) is mandatory required to file the ITR. The obligation to file ITR is linked with income & not with final tax liability. Most common error is committed by the salaried taxpayers who are not filing their ITR on the pretext that the TDS is done by their employer & it absolves them from their liability to file the ITR. This is not so. Even if the tax is fully paid or even if the final tax liability of the taxpayer is less than the amount of Tax Deduction at Source (TDS), still such person is required to file the return of income. Be cautious about the legal provision & file the ITR even if no more tax is payable at the time of filing.  Similarly, Companies & firms have to file the return of income even if there is no business or they have nil tax liability. Section 139(1) imposes a compulsory liability to file the return of income for firms & companies. Even if the firm or company is incorporated on the last day of the financial year, the liability to file the return arises.

Further, the liability to file the ITR arises if the income before claiming deduction under Chapter VIA (which includes deduction u/s 80C towards LIC/PPF/NSC/ELSS etc, U/s 80D towards mediclaim payment, U/s 80CCD(1B) towards NPS) etc exceeds the BEL. That is, if the final taxable income is above the BEL & after claiming deduction U/S 80C, 80D, it goes down the limit then the taxpayers would still be required to file ITR. Similarly, Exemption available u/s 10(38) towards Long Term Capital Gain (LTCG) arising from sale of shares is also to be ignored & if amount exceeds the BEL prior to such exemption then filing would be mandatory.

Any person having any beneficial ownership or any assets or signing authority in any account located outside India are mandatorily required to file ITR even if there is no income or income is below the BEL. Earlier, taxpayers were conferred with a 2 year time frame to file the return of income which is now restricted to one year only.

Even though the return filing is possible after the due date with some late fee, still it is advisable to file it within the due date. There are various advantages if the return of income or audit report thereto is filed within due date, as under:

  1. No Late Fee:
    If the return is not filed within the due date then late fee  would be leviable.
    a) For taxpayers with income up to Rs. 5 Lakh, Late fee would be Rs. 1,000/-.
    b) For taxpayers with income exceeding Rs. 5 Lakh, Late fee would be Rs. 5000/- if return is filed till 31st December & Rs. 10,000/- if return is filed after 31st December. For the ITR of FY 2019-20, the due date is already extended to 31st December 2020 & hence no question of late fee of Rs. 5000/- would arise. Every return filed after the due date of 31st Dec (except audit cases wherein due date is 31st January) the late fee of Rs. 1,000/- or Rs. 10,000/- would be applicable.
    Questions are raised by many taxpayers regarding the applicability of late fee if the taxpayers income (ignoring Chapter VIA deduction, 10(38) exemption, etc) is below the BEL & such person files return of income after the due date. It may be noted that the late fee is applicable only if there is an obligation to file the return of income u/s 139(1). Returns filed voluntarily without any obligations attached u/s 139(1) would not be subject to any late fee. At the cost of repetition, firms/companies without any income/business would be liable for late fees if ITR is not filed within the due date as the obligation is imposed by section 139(1).
  2. Penalty for Late filing of Audit Report:
    The taxpayers who are required to get the books of accounts audited u/s 44AB are also required to file an audit report one month before the due date of filing ITR. Now, the due date of filing ITR in audit cases is 31st January 2021 which means that the due date of uploading the audit report would be 31st December 2020. If such a taxpayer fails to file the audit report by 31st December 2020 then they may be liable to penalty @ ½% of the turnover. However, the maximum amount of penalty in such cases is restricted to Rs. 1.50 Lakh.
  3. Benefit of application of money in case of charitable Trust:
    The benefit of application of income to the charitable trust is available only if  the income tax return, audit report in Form No. 10B, other declaration regarding accumulation etc are furnished within a prescribed time period. Delay in filing will result in denial of the benefit of application of income and may result in hefty tax liability.
  4. Few Deduction only if the return is filed within Due Date:
    There are various deductions like deduction u/s 80HH to sections 80RRB, u/s 80IA, IB, IC,   etc which can be availed only if the return of income is filed within due date. Belated filing of return results in denial of such deductions. It may be noted that most of the societies are not liable to pay the tax on their income as they are eligible for deduction u/s 80P. Such societies are also required to file their return within due date failing which no deduction u/s 80P would be admissible. In short, few tax benefits are available not on mere compliance but on timely compliance.
  5. Advantage of Loss Carry forward of Loss:
    If taxpayers have incurred a loss during any year, they are allowed to carry forward such loss for set off against subsequent years income. However, this benefit of loss carry forward is available only if ITR is filed within the due date. If the ITR is filed after the due date then the benefit to carry forward the loss is lost.
  6. Interest U/s 234A:
    Any delay in filing of the ITR, beyond the due date attracts an additional interest at the rate of 1% for every month, or part of a month during the period of delay on the amount of tax remaining unpaid. So, by filing income tax returns a person can avoid interest liability as well.
  7. Income Tax Refund:
    It’s only after filing of the ITR that the return can be processed. By filing income tax returns earlier, taxpayers can get income tax refund sooner if there is an excess TDS/TCS.

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