Consequences of Non-Filing or Delay in Filing of Income-tax Return (ITR)

Introduction

In this article, we delve into the repercussions of failing to file or delaying the filing of Income-tax Returns (ITRs) as mandated by the Income-tax Act. Neglecting this responsibility can lead to various financial penalties, including higher taxes, interest, penalties, and even legal actions by the government.

Non-carry forward of losses

Losses Under Capital Gains or Business/Profession

When an individual incurs losses under the heads of Capital Gains or Business/Profession, timely filing of the ITR is crucial. Failure to do so within the specified due date outlined in section 139(1) of the Act results in the inability to carry forward these losses to subsequent years. Consequently, one ends up paying higher taxes on the income generated under the same heads or different ones, subject to inter head set-off conditions.

No Refund of Excess TDS/TCS

Excess Deductions or Collections

Any excess Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) by banks or entities necessitates claiming a refund through filing the ITR. Failure to file results in these deductions becoming a dead cost for the taxpayer. It’s essential to understand that while TDS is deducted on income, TCS is collected on amounts not classified as income. Hence, filing the ITR becomes imperative to reclaim TCS refunds.

Interest and Delay Fees for Delayed Filing

Penalties for Late Submission

A delay in filing the ITR incurs interest and delay fees as per the provisions of the Act. Section 139(1) outlines the due date for filing, and failure to meet it leads to the imposition of interest under section 234A, at a rate of 1% per month or part thereof. Additionally, if liable to pay Advance Tax, interest under section 234B becomes applicable. Moreover, taxpayers face a delay fee ranging from INR 1,000 to INR 5,000, depending on their income bracket.

Best Judgment Assessment

Assessment by Authorities

In cases of non-compliance with filing deadlines, Assessing Officers (AOs) resort to Best Judgment Assessments. Here, the AO estimates the taxpayer’s income and tax liability based on available information. Factors such as past records, industry standards, and comparable cases are considered. This assessment ensures that taxpayers fulfill their obligations in a timely manner.

Prosecution under the Act

Legal Ramifications

Failure to file an ITR when obligated to do so can lead to severe consequences under the Act. If the evaded tax amount exceeds INR 25,000, rigorous imprisonment for a term not less than 6 months (up to 7 years) and a fine are imposed. For lesser amounts, imprisonment ranges from 3 months to 11 years, along with fines. These penalties underscore the importance of complying with tax regulations.

Non-Disclosure of Foreign Assets

Obligation to Disclose Foreign Assets

Taxpayers possessing foreign assets or foreign income are obligated to disclose these in their ITRs, particularly if their residential status is Resident & Ordinarily Resident (ROR). Failure to disclose or file ITRs incurs a penalty of INR 10 lakhs under The Black Money (Undisclosed Foreign Income And Assets) And Imposition of Tax Act, 2015. This regulation aims to curb tax evasion and promote transparency.

Conclusion

Filing Income-tax Returns within the stipulated deadlines is not just a legal obligation but also a financial prudence. The consequences of non-compliance can be financially burdensome, leading to penalties, interest payments, and even legal repercussions. Therefore, taxpayers must prioritize timely and accurate filing to avoid such adverse outcomes.