Penalty for Late Filing of ITR

Filing of tax returns is a mandatory part of your job, even if you have paid all the taxes on time. Currently, the Income Tax Department allows 4 months to file the tax returns. That is for the financial year ending 31st March 2023, you can file the returns by 31st July 2023. If there is delay there is penalty for late filing of ITR and late fee for ITR or penalty for late filing.

In reality, tax payers get less than 4 months because the Form 16 and the Form 26AS would only get updated by the middle of May, but assessees still have around 150 days to get all the details together. With the tax department allowing you to file returns online, the entire thing can be completed in a jiffy. However, should you not file the returns on time, for any reason, there is a penalty charged. This is even if you have paid all the taxes in advance. This is now machine driven, so you have to pay the penalty before late filing of returns.

However, it is best to avoid such late fees and penalties by filing returns on time. In fact, it is suggested not to wait till July 31, but file returns as soon as all the data is in place. However, assessees need to understand the costs and penalties of delayed tax return filing and also the other consequences of the same.

Factors that determine the penalty amount

Before getting down to the penalty amount, let us first look at the relevant dates that will be used to decide whether it is a delayed return filing or not.

•    Typically, Assessment Year 2022-23 corresponds with Financial Year FY21-22. For the financial year ending March 2022, the due date for return filing under section 139(1) of the Income Tax Act is 31st July 2022. Here we are assuming no extensions.

•    Here it must be noted that paying all the taxes on time is not enough. The obligation of the tax payer does not end there. They also have to file tax returns in the proper format before the due date. Effective FY18, the CBDT (Central Board of Direct Taxes) has made it mandatory to pay penalty for missing the ITR filing deadline. A late fee is applicable with possible legal consequences.

•    On the relevant dates front, the ITR filing for individuals and entities not liable for tax audit continues to be 31st Jul 2022.

•    The ITR filing deadline for taxpayers covered under tax audit (other than transfer pricing cases) is 31st Oct 2022 while the ITR filing deadline for taxpayers covered under transfer pricing mechanism is 30th Nov 2022

•    Due date for revised return/belated return of income tax can be filed latest by 31st December of the same year.  For Financial Year 2021-22 (corresponding to AY2022-23), the last date for revised returns filing will be 31st Dec 2022,
If the returns are not filed on time, there is late fees levied under Section 234 of the Income Tax Act. The penalty amount becomes a pre-requisite for filing delayed returns. Then there is ITR late filing penalty and income tax late fee. Here are how the penalties are calculated for late filing of returns. 

•    The due date for filing Income Tax returns for FY 2021-22 in regular cases is 31st July 2022. If that ITR deadline is missed for any reason, then delayed returns can be filed latest by 31st December 2022. Returns cannot be filed online after that date.

•    Even if the returns are filed before 31st December in this case, the tax payer is required to pay the penalty for late filing. In this case, the maximum penalty of Rs5,000 is levied if you file ITR after the due date of 31st July 2022 but before 31st December 2022.

•    There is a special concession for small taxpayers. If total income does not exceed Rs5 lakh, the maximum penalty levied for delay will be limited to Rs1,000 only.

Benefits of filing ITR on time

While the condonation facility is offered by the Income Tax Department, it is always advisable to file the returns on time. Here is why.

•    Your filed returns are a key to easy Loan Approval. Delays in filing tax returns are normally frowned upon by banks and financial institutions. Such return copies are essential for individual applying for home loans, auto loans and personal loans.

•    Filing your income tax returns on time also ensures quick refund. This is more so in the case of presumptive taxes like TCS imposes on you. If you have paid excess tax to the income tax department, you should file your income tax return as early as possible.

•    Income Tax returns are an important document when it comes to Visa Processing for countries including the US, UK, and Schengen. Most embassies and consulates require you to furnish copies of your tax returns for the last couple of years for visa application.

•    Probably, one of the most important reasons for you to file returns on time is to ensure that you get the benefit of set off and carry forwards of losses. Only if you file the income tax return within the due date, you will be eligible to carry forward losses to subsequent years. You can use such losses to set off against your future income. This facility is not available in the case of delayed returns.

•    Finally, it is a good idea to stay in the good books of the tax man. By filing returns on time, you can avoid Penalty and Prosecution. This can help you maintain a clear tax track record with respect to your tax papers. 

How to calculate the penalty for late filing of ITR

Here is how the penalty for late filing of ITR is calculated.

•    Even if returns are filed before 31st December, the tax payer is required to pay the penalty for late filing. In this case, the maximum penalty of Rs5,000 is levied if you file ITR after due date of 31st July 2022 but before 31st December 2022.

•    There is a special concession for small taxpayers. If total income does not exceed Rs5 lakh, the maximum penalty levied for delay will be limited to Rs1,000 only.

However, these are subject to having paid all your taxes during the financial year itself. In case you have short-paid taxes for the year then, apart from this late filing penalty, you have also to pay interest at 1% for every month, or part of a month, on the amount of tax remaining unpaid as per section 234A. Payment of full taxes with interest is a requisite for filing your returns in this case.

Exceptions to the penalty for late filing of ITR

The Income Tax department, at its discretion may waive the penalty, if it is convinced it was a genuine case of delay. It is purely discretionary.

How to avoid penalty for late filing of ITR

The best way to avoid penalty for late filing of ITR is to file the returns on time and ensure that all taxes are paid during the fiscal year as per relevant dates.

Conclusion

Paying taxes on time and filing returns on time is your duty. Being a law abiding tax payer has benefits which far outweigh any reasons for the delay.

FREQUENTLY ASKED QUESTIONS (FAQ)

What is the deadline for filing ITR?

The deadline for filing tax returns (unless extended by CBDT) is 31st July.

What happens if I file my ITR after the deadline?

If the return is not filed by the deadline, then penalty is charged for late filing which is allowed up to 31st December of that year.

How is the penalty for late filing of ITR calculated?

The penalty can be up to a maximum of Rs5,000 but is limited to Rs1,000 if total income is less than Rs5 lakhs.

Can the penalty for late filing of ITR be waived?

It can be waived under special circumstances subject to discretion of the ITR department.