What’s the penalty for late filing of income tax return?

Some of us may have probably received lower monthly take-home salaries for January. A close look at the salary slip may reveal that the amount deducted as tax by your company has been higher compared to the previous few months. So, what could have led to the higher deduction?

Chances are that you may have forgotten to submit proofs of investment in certain tax-saving financial products.

In India, employers are mandated to cut taxes on employees’ monthly salaries. This is called tax deducted at source. The amount is decided by the tax rate applicable to a particular income slab.

At the start of every financial year, employees are asked to submit a list of investments they plan to make during the course of the year, starting April till March. Typically, most salaried employees provide a list that includes investment in a Public Provident Fund, and tax-saving mutual fund schemes, among others, as these are exempted up to a limit of Rs 150,000 under Section 80 C of the Income Tax, 1961.  

Based on this list, the tax liability is calculated. Usually, in January, companies ask employees for proof of the investment they had declared. If employees don’t give or the investment is lower than what was initially disclosed, employers deduct higher TDS. The deadline is March 31 but employees, especially those who have made all the investments as promised, must do it as soon as possible to avoid higher TDS.

The importance of submission of these documents is that all exemptions and deductions are reflected in what is called Form 16, which is a certificate of how much income a person earned and the amount of TDS deducted. Form 16 is required for salaried employees during the filing of Income Tax Returns (ITR). The deadline for filing returns is July 31 of each year.

For some reason, if you missed submitting the proof despite making the investment, the same can be claimed while filing the ITR. All this assumes that investments were made before March 31.

Filing Tax Returns

TDS is the tax you have paid to the government through your employer. But salary is not the only form of income. There are other streams of income such as income from housing property, interest income, as well as income from capital gains on investments. All these are taxed after a certain amount and the same has to be captured in one place and submitted to the government by filing the Income Tax Return.

Usually, the deadline for filing ITR for a particular assessment year is July 31. Now, remember, the assessment year is different from a financial year and many of us get confused. When most of us will file ITR before July 31, 2023, it will be for income earned between April 2022 and the end of March 2023 or financial year 2022-23 (FY23).

The assessment year is the next year or the year when the returns are filed. By the same example of filing ITR before July 31, the assessment year applicable would be from April 2023 through March 2024, or AY 2023-24.

Most taxpayers wait till the last minute to file ITR with the expectation of an extension in the deadline. In the past, the government has routinely pushed the deadline ahead. But instead of second-guessing whether the deadline for filing ITR is extended, it is a good idea to stick to the timeline.

Costly Affair

Missing the deadline is a costly affair as the tax department levies penalties and interests under various sections of the Income Tax Act, 1961.

Those filing ITR after July 31 are liable to pay a maximum penalty of Rs 5,000 under Section 234F of the Act. However, the penalty amount is lower for small taxpayers. Accordingly, those with a total income of up to Rs 5 lakh are liable to a penalty of Rs 1,000 in case of filing ITR after July 31.  

There is more. Missing the due date for filing an Income Tax return also attracts interest.

According to Section 234A of the Act, taxpayers have to pay interest amounting to 1% per month or part of the month, on the unpaid amount. The 1% is a simple interest charge and part of the month is considered a full month. Suppose, a taxpayer had Rs 100,000 of tax outstanding and if he makes the payment on October 5, he will have to pay Rs 3,000 plus the pending tax amount.

There are also specific sections of the Income Tax Act that deal with levy of interest in case of delay in filing in cases an advanced tax is not paid, either fully or partly, or if the payment is less than as per the installment schedule, which is extended to some payers as a relief measure.

The longer you wait to file ITR after the July 31 deadline, the more will be the tax burden.

It is a good idea to file an Income Tax return within the deadline. But it is equally important to ensure that all the relevant documents are submitted with adequate information.

For instance, if the taxpayer is unable to furnish tax collected at source (TCS) or TDS statements before the deadline, he or she will have to pay a penalty that ranges between Rs 10,000 to Rs 100,000 under Section 271H. In addition, a penalty of Rs 200 per day is also levied under Section 234E till such TCS/TDS is paid.

To reiterate, filing ITR on time is important because of the various penalties and interests, and there are other inconveniences that taxpayers may face in case of delay.

The income tax department allows revision to the filed ITR in case you notice any errors. However, this has to be done before the end of the given assessment year. The earlier you file an income tax return, the more time you will get to rectify errors, if any. Similarly, those expecting refunds must stick to the deadline so that there is no delay in receiving tax refunds.

Conclusion

Understanding taxation is a key component of personal finance management. It allows individuals to take a timely call on making investments that will not only yield more returns but also lower the tax burden.

Any delay in filing income tax returns potentially disrupts monthly budgets because of various penalties and interest payments. The advent of fintech solutions has made filing of tax returns easy, cost-effective, and transparent. So, make sure you don’t delay filing your income tax returns.