Income Tax

Financial consequences for late filing of ITRs

Filing of Income Tax Returns (ITRs) is one of the tedious but mandatory tasks that an assessee has to do every year before the due date of filing. This financial year i.e. 2020-21, the deadline for filing the ITR has been extended to 31^st December, 2021 i.e the due date is 31^st March 2021. 

This blog lists down the required dates on which the Income Tax Return needs to be filed along with the penalties and other consequences which may accrue to an assessee for late filing of Income Tax Returns.

What is the difference between ‘last date’ and ‘due date’ of filing of ITRs?

There is a big difference between ‘due date’ and ‘last date’ for Income Tax Return filing. The due date is that date before which the ITR can be filed without the obligation to pay late fees. And the last date is the date by which ITR can be filed along with the obligation to pay late fees.

What is the difference between ‘assessment year’ and ‘financial year’?

The year in which the assessee earns an income is called a financial year and the subsequent year to the financial year in which the assessee’s income is assessed by the Income Tax Department^[1] is called the assessment year. For example: for the financial year of 2020-2021 the assessment year will be 2021-2022.

Due Dates of Filing of ITR for financial year 2020-21

The due date for the filing of ITR for the financial year 2020-21 for the Assessment Year 2021-2022 has already been extended by the government two times. The due date has been moved from due date of 31^st July 2021 to 30^th September 2021 and now to 31^st December 2021.

 It must be observed that the due date of 31^st December 2021 is applicable only for those assesses whose accounts are not supposed to be audited.

The assesses whose accounts are supposed to be audited, the ITR due date has been extended till 15^th of February 2022. For these companies too, the due date has been extended twice.  

With the tightening of the regulatory framework, the number of ITRs has increased significantly over the past few years. The number of ITR returns filed in the financial year of 2018-19 significantly rose t the tune of about 7 seven crores. However, for the financial year of 2020-2021, the ITRs that have been filed so far have been less than 5 crore. This shows that close to 2 crore assesses have not filed their returns so far.

Following are the penalties that may be imposed on the assessee if he/she fails to meet the deadline of filing the ITR.

Further, the last date to file the ITR for the financial year 2021-2022 has also been extended till 31^st March 2022.   

Penal consequences for late filing of ITRs

If an assessee fails to file his ITR before the due date which is 31^st December 2021, then the assessee can still file ITR by filing what is called as ‘belated return’. However, the assessee will have to pay the penalty of late filing fees and penal interest. The assessee will have to give up the additional interest earned on the unpaid taxes. 

Further, the maximum penalty for late filing of ITR extends to Rs. 5000 after the due date.

In case of the small taxpayers whose taxable income does not exceed Rs 5 lakh, then they will be obligated to pay a penalty of Rs 1000 if their ITR is filed after the due date but before the last date of 31^st March 2022.

If the income earned is below the taxable limit, then the assessee is not mandated to pay any penalty. However, if the assessee receives income from the foreign assets, then he shall be liable to pay the fees for late filing even if the amount earned is below the taxable limit.

Those people who have income equal to or less than Rupees 2.5 lakh, then the tax rate is nil no matter what is the assesses’ age.

Before the financial year of 2016-2017, there was no provision for penalty on belated filing of ITR. This was changed after the financial year of 2016-2017 where the provision of penalty on belated filing of ITR was introduced. So from the financial of 2017-2018 onwards, the defaulters were charged penalties for late filing of ITR.

When the provision of penalty for late filing of ITR was introduced for the first time, the maximum penalty was pegged at Rupees 10,000. However, as a sigh of relief for the defaulters, the maximum penalty has been reduced down to Rupees 5,000.

Financial consequences for late filing of ITRs

If an assessee fails to file the ITR within the due date, the he will be obligated to pay penal interest on the unpaid tax liability, if it accrues. The assessee will not be able to carry forward the losses even if all the taxes had been paid on time. This concludes that any losses incurred whether from the profession and business or from the speculative business, the assessee shall not be able to claim both short term and long term losses or any kind of losses except from the losses incurred on the house property and that too upto the maximum limit of Rupees 2 lakhs.

Conclusion

The benefit of filing the ITR before the due date allows the assessee to carry forward both short term and long term losses and that too for a maximum of eight assessment years immediately following the assessment year in which the loss was first computed.

If the ITR is not filed on time, then the assessee will not be able to set off losses against the current year’s accrued income. The assessee will also be deprived of the interest on the excess of tax paid for the delayed period. Therefore, it is advisable that every eligible person must file their ITR on time and not get swayed by the rumours that the government will further extend the due date because of the COVID.

Read our article:IT Dept. gives One-time Relaxation for the verification of e-filed ITRs