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Why to File Income Tax Returns by Due Date

March 15 , 2013

Looks like the government has got into serious mode. In the last one month the I-T department has sent about 1 lakh notices to tax defaulters across the nation asking them to file returns and pay up advance tax and other dues.

There is hardly anyone who would be ignorant of due dates but blame it on procrastination- many people miss the deadline and some don't file it at all. Perhaps if everyone were aware that they might miss out on certain privileges by not filing income tax return on time, some might be motivated to act on time. We will deal with possible consequences of not paying taxes in another article.

Due date for filing I-T return

For a recap, income tax returns are to be filed on or before due date which usually falls on 31st July of the relevant assessment year. Sometimes this date gets extended and the department notifies it. Let's also touch upon who needs to file income tax returns.

Do you need to file tax returns?

For FY 2013-14 Income Tax Return is to be mandatorily filed by everyone whose income is over Rs 2 lakhs, ie the minimum taxable bracket.

For those whose income is over Rs 5 lakhs it is mandatory to file tax returns online, others can do it online or in paper format. E-filing has certain benefits over paper filing and eventually it will totally replace paper filing of tax returns.

What if you don't file returns on time

It's understandable; you could have unintentionally missed I-T return deadline for a variety of reasons. You can file returns by the end of the relevant assessment year without paying penal fees or by the end of the next assessment year with a penal fee, if you are asked to.

Thus income tax returns can be filed belatedly by 2 years; after that you cannot file returns. Therefore tax returns for financial year 2013-14 can be filed by 31st March of 2015 without penal fee or by 31st March of 2016 with a fee if the department so demands.

Let's now look at two situations possible- you have income tax dues or you do not.

As long as you don't have any income tax dues you don't have much to worry about. You can file your tax return by the end of the assessment year. You will not be charged any penalty or interest for filing returns late up to 31st March. But if you miss the assessment year as well you can file returns the following year, with a penalty of Rs 5000 (based on section 271F of I-T Act), if the Assessing Officer demands. If he does not, well and good!

What if you missed return filing deadline and you also owe some tax as advance tax or self assessment tax? In this case you cannot skip interest along with the tax while filing returns before the end of the assessment year. Simple interest at the rate of 1% every month is to be paid on your income tax dues (your total tax liability less any TDS and advance tax that was paid) from due date to the date when the return is filed. This is based on section 234A of I-T Act.

Imagine your tax liability from salary for financial year 2013-14 is Rs 20,000 and it is paid as TDS. Suppose you sold your shares and made a profit of Rs 1 lakh and were liable to pay income tax of Rs 10,000 on the capital gain, which you did not pay by due date of assessment year 2014-15. In this case if you file returns in December 2014 you'd have to pay Rs 10,500 (10,000 + 1% of 10,000 for 5 months) as tax. If you do not clear your dues by March end and file returns in the following assessment year the tax and interest for all the months and possibly penal fine of Rs 5000.

What could be lost if income tax returns are not filed by due date

If you have deductions to claim or have losses to carry forward you cannot afford to miss filing returns by due date. Here's why:

1. Any tax refund due to you will be delayed. Refunds can be expected anywhere from 2 months to 2 years.
2. If you have losses to be carried forward to following assessment years, these can be carried forward only if returns are filed by due date of the relevant assessment year. Loss from house property is exempt from this. 
3. If you discover later on that you made errors in filing return you stand no chance to revise it unless it was filed by due date. This is the prerogative of those who are on time!

What if you don't file returns at all?

If income tax returns are not filed within 2 years of the financial year, you lose the chance to file it. This means you cannot claim refunds if tax return is not filed in 2 years.

With the I-T department going totally internet-based in the future and PAN being a necessity in all financial and real estate transactions it would be easier for the taxman to pick out those who have not filed returns or worse still not cleared income tax dues. You don't want them coming for you with a stick.

But you have your own good reasons. You might need 3 years' I-T returns for getting a bank loan. If you're planning a foreign trip, you would need it for the visa proceedings as well. File your tax returns on time- after all it is a desirable personal finance habit to cultivate.

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