Every individual whose income is more than the basic exemption limit of taxable income has to file an Income Tax Return (ITR) for every financial year. The due date depends upon the legal status of the assessee for filing an ITR. 30th September is the Due date for companies and assesses liable for a tax audit. 31st July is the due date of filing a tax return for others.
For not filing an income tax return, a taxpayer can have serious repercussions, as follows:
1. An income tax return is proof of the income you earn. It also helps in faster processing of loans, visas and credit cards. It is a necessary document for the processing of loans, visas/master and credit cards. Hence, if you are applying for a home loan, it is essential to have all your income proofs ready. Also, paying your tax on time adds to your credentials as a trustworthy and law-abiding citizen. Filing the ITR will help individuals, when they have to apply for a vehicle loan (2-wheeler or 4-wheeler), House Loan, etc., a copy of tax returns can be asked for by major banks.
2. Claim Tax Refund: If you have a refund due from the Income Tax Department, you will have to file an Income Tax Return to claim the refund.
3. Income & Address Proof: Income Tax Return can be used as proof of your Income and Address.
4. Quick Visa Processing: Most embassies & consulates require you to furnish copies of your tax returns for the past couple of years at the time of the visa application.
5. Carry Forward Your Losses: If you file the return within due date, you will be able to carry forward losses to subsequent years, which can be used to set off against income of following years.
6. Avoid Penalty: If you are required to file your Tax returns but didn’t, then the tax officer deserves the right to impose a penalty of up to Rs.5,000.Income Tax Act, u/s 234F, makes provisions for penalties, there will be two sets of penalties for tax returns filed after the due date.
7. Processing Of Returns: While e-filing your returns, the servers may slow down due to multiple requests closer to the tax return deadline. So filing your returns closer to the due date may lead to a delay in processing, thus to avoid the delay file your tax returns early.
8. Prompt Refunds: If you file your claim early, it then helps for faster tax refund process. This processing usually takes more time than the tax which is due. In case you file it later, it may get delayed due to the multiple and numerous applications. In case your tax refund is a sizable amount, you can use it productively by using it early and receive earnings. The more the delay, the higher the chances of missing out on higher interest that you can earn on the amount.
Moreover, you lose the benefit of getting paid at an interest of @6% p.a. if the refund amount is greater than 10% of the taxable income from the date of filing the income tax return if you submit the returns after the due date.
9. Enough time frame to get all your documents: Although the tax filing process has become easy, once you start the process, you may realise that specific additional documentation is needed. Documents like interest certificates, loan repayment statements, TDS certificates, Form 26AS etc., If you start income tax prep early, you will have enough time to request for these documents from the appropriate sources.
10. Elimination of errors: If you file your returns early, you will get enough time to remove errors. In a hurry to meet the deadline, you may forget to include specific sources of income or miss claiming a deduction.
11. The assistance of Tax Return Preparer: If preparing your taxes confusing and time-consuming, you can seek the help of a certified tax return preparer (TRP). Without any delay, avail of the services of a TRP. CAs and TRPs will be flooded with work once the due date approaches; therefore, they may not be able to give sufficient time to resolve any query. By submitting your documents earlier, you will provide them with adequate time to examine your documents and eradicate errors and be able to save tax. You may also save on fees and can negotiate a better rate if you avail of their services early on. The moment they get flooded with clients, they may not even entertain you.
12. Tax planning for the current year: We learn from our blunders. You may have missed availing several deductions last year. If you file returns early, you may get facts on how to save tax in the current financial year. With every passing year, the tax rules are reformed to some extent. Hence, early returns filing may give ideas on how to save on tax for the current financial year. You will be able to optimise better the tax deductions you are eligible. You can also inform your employer if you wish to alter and optimise your salary structure to save more tax.
13. Eliminate stress: Filing your taxes can be stressful. You can avoid the financial stress of being charged a late fee and penal interest. Stress has been known to affect our health adversely. By submitting your tax returns before the deadline, you will be happier with a host of benefits.
1. Carry forward of losses: Assesses are entitled to claim set off for any losses incurred against income earned during the relevant financial year (subject to income tax provisions and rules). Further, an assesses also entitled to carry forward such losses which could not be set off in a particular financial year. However, if an assessee does not file his return of income before the due date, then such losses cannot be carried forward.
2. Deductions under Chapter – VI-A: An assessee is entitled to claim deductions for investments in Provident fund, NSC, Life insurance premium paid, the medical premium paid, etc. However, the same can be claimed if the assesses files his return of income within the specified due date.
Interest under Section 234 ITR includes the sources of income earned during the previous year and the tax liability arising from the same. Income tax liability is required to be paid as per income tax provisions. In case of delay in payment of tax liability, Interest is levied at 1% per month or part of the month.
3. Penalty: In case there is a delay in filing an income tax return without any reasonable cause, the penalty for Rs. 5,000 may be levied. The Assessing Officer does have the power to waive of such penalty. Also, a reasonable opportunity of being heard is given to the taxpayer before the imposition of the penalty. But, it is always better to adhere to the rules instead of getting into the hassles of hearings.
4. Loss in interest on refund: Assesses are eligible to claim a refund in case tax paid is more than the amount of tax liability. Refund is required to be processed and paid within time limits specified in the income tax act. In case of delay in payment of refund, the department is liable to pay interest on the same. If the return is filed late, i.e. after the due date, then interest on refund is reduced for each day of delay.
5. Other implications: Tax returns prove to be of importance while considering tax payer’s creditworthiness. Tax returns are mandatory requirements for any loan application, visa application, etc. Hence, non-filing or late filing of income tax return proves to a hindrance for the assesses in one or more ways. Also, it is essential to note that delay in filing of income tax returns can be condoned by the assessing officer provided there is reasonable cause for delaying.
6. Security: Filing records electronically may not be secured similar to sending them through post or e-mail. Specifically for those who employ an outside or third party service to do the electronic filing for them, you are providing identifying information that the service may keep on file for an extended period. It means that more individuals can have access to your information. In particular, a case where you are supposed to get tax refunds, and you want it done immediately; you will have to provide your bank account number and routing number for the deposit to take place. Thus, your data is less secure.