What happens if, we neglect or postpone the submission of Income Tax Return when mandated under the Income-tax Act (“the Act”). Such negligence could result in elevated tax liabilities (inclusive of interest, penalties, and delay fees) or invoke legal repercussions by the authorities.
- Penalty & Interest: Non-compliance with the filing deadline specified in section 139(1) of the Act incurs interest charges under section 234A of the Act, calculated at 1% per month (or part thereof) for the duration of the delay. Additionally, if liable for Advance Tax, the taxpayer faces interest under section 234B of the Act. Moreover, a delay fee ranging from INR 1,000 to INR 5,000, contingent on income brackets, is also levied.
Dis-allowance of Loss Carry-forward: In case you have incur losses under the head Capital Gains or Business or Profession and you have not filed your ITR within the due date specified in section 139(1) of the Act, you cannot carry forward the losses to future years and this leads to paying higher taxes on the income you have under the same heads or different heads subject to the inter head set-off conditions.
Denial of excess TDS / TCS refund: In case, any excess TDS has been deducted or any TCS has been collected by the bank or any entity, the refund of the same can only be claimed by filing the ITR otherwise it will become dead cost for the taxpayer. TCS is mostly collected by the entity on the amount not in the nature of income unlike TDS which is deducted on the amount in the nature of income. Therefore, ITR must be filed in order to get refund of TCS collected.
- Best Judgment Assessment: Failure to file within the stipulated deadline empowers the Assessing Officer to conduct a Best Judgment Assessment. Here, the AO estimates the taxpayer’s income and tax liability based on available information, including historical data, industry standards, comparable cases, and other relevant factors.
Prosecution under Legal Provisions: Individuals obligated to file ITR but fail to do so are punishable –
(i) Rigorous imprisonment ranging from 6 months to 7 years, along with a fine, if the evaded tax amount exceeds INR 25,000.
(ii) Imprisonment for a minimum of 3 months to a maximum of 11 years, in addition to a fine, in other instances.
Non-Disclosure of Foreign Assets and Income: Taxpayers possessing foreign assets, including bank accounts, or earning foreign income, are mandated to disclose such holdings in their ITR if they maintain Resident & Ordinarily Resident (ROR) status for the relevant financial year. Failure to disclose or file ITR in such cases incurs a penalty of INR 10 lakhs under The Black Money (Undisclosed Foreign Income And Assets) And Imposition of Tax Act, 2015.
Note: Taxpayers must diligently review Form 26AS, Annual Information Statement (AIS), and Taxpayer Information Summary (TIS) to ascertain reported transactions, including those without TDS/TCS deductions. This aids in determining ITR filing obligations as per the Act’s stipulations. Moreover, in cases where no transactions are reported, but income exceeds the non-taxable threshold, seeking professional advice before filing ITR is advisable.
