The deadline for filing income tax returms is July 31, 2010, which is still a good one-and-a-half month away. However, when it comes to filing income tax returns, procrastination could get the better of us. Has it ever occurred to you that waiting for the last moment may result in missing the deadline? Then what happens?
We have outlined here the repercussions of not filing returns on time, which may differ depending on whether tax is paid or payable.
Case 1: Taxes have been paid, but returns have not been filed before July 31.
If you have missed your filing date, but do not have any outstanding tax payable, you can breathe a bit easy. You can file your returns anytime till the end of the assessment year. If you file your returns after that, then you have to pay a penalty of Rs 5,000.
For the current assessment year, 2010-11, you will be filing returns for the financial year, 2009-10. So if you miss your tax filing date which is July 31, 2010, you can file your returns up to March 31, 2011 without attracting any penalty. If you do not file returns before March 31, 2011, a penalty of Rs 5,000 will be levied.
Case 2: Outstanding tax amount is payable and returns have not been filed before the due date.
If there is some amount of tax outstanding, which is payable and you have missed the due date, you can file the return any time till the end of that assessment year, but a penalty of one per cent per month will be levied on the outstanding tax amount payable.
However, if it is filed after the end of the assessment year, not only a penalty of one per cent per month is levied on the outstanding tax payable, but also a lump sum penalty of Rs 5,000 will be charged.
Illustration: Sumitra has missed July 31 deadline for filing tax returns. She realises that there is an outstanding tax payable to the tune of Rs 18,000.
n Situation 1: Sumitra files her return before March 31, 2011 — on February 20, 2011. The tax amount payable now is: Rs 18,000 + Rs 1,260 (18000 X 1% X 7) = Rs 19,260
Situation 2: Sumitra files her return on June 19, 2011. The tax amount payable now includes Rs 18,000+ Rs 5,000 + Rs 1,980 (18,000 X 1% X 11) = Rs 24,980.
As per the Income Tax Act, delay in filing returns is permissible up to two years from the end of the financial year in which the income was earned, irrespective of whether tax is outstanding or not.
This means, if you earn your income during FY 2009-10, you may file a late return any time before 31st March, 2012 after which you are not allowed to file returns for that year and any income earned will be treated as concealed income chargeable to tax. In such cases, the penalty could be as much as three times, the amount of tax payable.
Disadvantages
Under the Income Tax Act, if you do not file your income tax return for the year before the due date, loss for that year under cannot be carried forward. This will result in you losing the benefit to set off losses against income in the next year. For example, if a tax payer has suffered a business loss, he will not be able to carry it forward.
In case of filing delayed return, the tax payer will not be allowed to revise his return if any errors were committed at the time of filing because the tax laws maintain that the right for revising returns is only available to tax payers filing their returns in time.
If you delay filing your returns, it may result in a loss of interest especially when you are claiming a large sum as refund.
So its clear that you stand much to lose if you do not file your returns on time. Besides, tax returns come in very handy when you are applying for a loan and also when you need to travel abroad as part of your visa application process. So it is important to start the process early and complete it within the deadline.
(The writer is CEO of bankbazaar.com. He can be contacted at adhil.shetty@
bankbazaar.com)