ITR Filing - Penalty for Late Filing of Income Tax Return

Introduction

Most taxpaying individuals seem to view filing income tax returns as burdensome and a hassle. However, filing income tax returns is no longer cumbersome like it used to be. With the advent of the online filing, also known as e-filing, the days of standing in long queues and the endless anxiety of meeting the tax filing deadlines are far behind. Today, you can conveniently file your returns from your home or workplace in a matter of minutes. But delaying or missing out on registering your ITR in time could incur substantial penalties.

Importance of filing on time

Taxpayers typically receive notifications from the Income Tax Department regarding necessary income tax-related days in advance. In order to avoid paying the income tax penalty for late filing of your income tax returns, it can help to create an alert for such dates or mark them on your calendar.

Filing your income tax returns comes with specific advantages such as carrying forward of losses, claiming an income tax refund, reporting one's revenue or income for the financial year and avoiding paying penalties. Any returns filed after the deadline usually calls for late payment fees of up to ₹10,000.

The need to file Income Tax Returns

As a taxpayer, you are called to declare your revenue, tax deductions, investments, expenses and taxes through a form to submit to the Income Tax Department. Under the Income Tax Act, 1961, it is mandatory for every taxpayer to file income tax returns. The facility of filing taxes can now be done online, and hence it is crucial to have necessary documents at the time of filing returns.

Understanding penalties

As a taxpayer, the penalty for late filing of income tax return could be:

₹5000 if income tax returns are filed after the deadline of the relevant Assessment Year. In this case, on or before December 31 of the relevant Assessment Year.

₹10,000 if income tax returns are filed after the deadline but before the end of the relevant Assessment Year. In this case, after December 31, 2019, but before March 31, 2020.

If your cumulative income does not exceed ₹5 lakhs, you could be liable to pay ₹1000.

The law of placing penalties for late filing of income tax returns was introduced in the Budget 2017, under Section 234F. It subsequently became valid for the Financial Year of 2017-18 or the Assessment Year 2018-19 and forward. The year that directly follows the Financial Year for which the ITR has to be filed is regarded as the Assessment Year. Hence, the Assessment Year for Financial Year 2018-19 is 2019-2020.

Simplifying the Section 234f penalty through examples

To understand how penalties can affect taxpayers, let's look at them through instances.

Example 1: Say, Mr X earns a yearly income of ₹6 lakhs. If he files his income tax return for Assessment Year 2019-2020 on August 25, 2019, he will not be required to pay the penalty under Section 234F. This is because, since Mr X filed his income tax returns within the due date, he was saved from paying a late fee.

Example 2: Mr A earning a yearly income of ₹7 lakhs filed his income tax return for Assessment Year 2019-2020 on November 10, 2019, would have to pay ₹5000 as penalty fee. This is because Mr A filed his income tax return after the due date, but before December 31, 2019.

Example 3: Mr D earning an annual income of ₹5.5 lakhs filed his income tax return for Assessment Year 2019-2020 on February 2, 2020, he would have to pay a late penalty fee of ₹10,000. This is because, Mr D filed his income tax return after the due date and after December 31, 2019.

Importance of filing taxes

While paying taxes is essential, filing your tax return holds even greater importance. While there are numerous advantages of filing your returns within the permissible timeframe, the consequences of delaying them can prove to be expensive such as paying the penalties under Section 234f income tax.

Hence, as a salaried individual, it is crucial to complete your tax return filing when you receive Form 16. By adhering to deadlines, there is no need to worry about late payment fees.

Repercussions of delayed ITR returns

If you delay filing your income tax returns, you may not be able to carry forward your losses from capital gains, except for losses from house properties. Besides, being late in filing your taxes could also incur interest on unpaid tax. In addition, not filing your tax returns on time could cause you to lose the interest on any refundable amount if you are eligible for refund and interest on that refund.

Besides, if you fail to file your returns on or before the deadline, it could invite an additional interest of 1% per month or until the time you clear the amount on the unpaid taxes. The interest is applicable under section 234A of the Income Tax Act.

For instance, the due date to file your income tax returns in a particular Financial Year is August 31, but you file your taxes on December 30. In this case, if your total outstanding is ₹1 lakh, having taken into account advance taxes and TDS, the total interest payable would be ₹4000, with interest charged at 1% for four months.

However, in the event that you have to pay the fee under Section 234F, you need to apply Challan Code ITNS 280. To pay the penalty, the taxpayer must visit the NSDL website and select Challan ITNS 280. There are two ways to make late payment fees.

It can be included as the total income tax due

The amount can be mentioned under 'Other' head.

Conclusion

Ensure that you file your income tax returns by the due date if your revenue surpasses the exemption limit. It is crucial to file your income tax returns on time if you have to deposit balance tax, expect a significant refund amount or have to carry forward your losses.

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