What is the Penalty for Late Filing of ITR?

Filing your Income Tax Return (ITR) might not be at the top of your to-do list, but missing the deadline can have some costly consequences. You might wonder, “What happens if I’m a little late?” Well, the tax authorities aren’t exactly lenient when it comes to delays. Whether life got busy or you simply forgot, late filing can lead to penalties, extra interest, and even the loss of certain tax benefits you’d otherwise be entitled to.

Consequences of Late Filing of ITR

The consequences of filing a late Income Tax Return can be burdensome, leading to penalties and potential legal issues. Here are some problems you can encounter if you are a late tax filer.

Penalties and Interest

One of the immediate consequences is the imposition of a penalty and interest for filing a late income tax return. The more you delay, the higher the penalties and interest charges. These additional financial burdens can erode one’s hard-earned money and disrupt financial plans.

Loss of Refunds

Failing to file tax returns on time can lead to the forfeiture of potential tax refunds. Additionally, delaying the filing means delaying the receipt of these funds, which could have been put to better use or invested elsewhere.

Audit Risk and Scrutiny

Late filers are more likely to attract the unnecessary attention of tax authorities, leading to time and resource-consuming audits. This can be avoided by filing the returns on time.

Reduced Time on Return Revision

The penalty of filing an ITR can lead to reduced time for revising your ITR return. Under the ITA (Income Tax Act) of 1961, taxpayers have the right to revise their ITRs within one year. However, if you file your ITR after the due date, this time limit will be reduced. For example, if you file your ITR for the assessment year 2023-24 (FY 2022-23) after the due date of 31st July 2023, you will only have until 31st December 2023 to revise your return.

Penalties for Late ITR Filing

The Income Tax Act includes an ITR late filing penalty when there is any discrepancy in filing the returns. These penalties can range from monetary penalties to imprisonment.

Let us take a look at a few of them.

Section 234F – Penalty for late filing of returns

ITR late filing penalty can be up to ₹5,000 under Section 234F of the Income Tax Act.

Section 234A – Interest on delayed filing of returns

A 1% monthly interest rate is charged for ITR late filing penalty under Section 234A.

Section 234B – Interest on delayed payment of advance tax

Section 234B imposes a 1% monthly interest rate for failing to pay advance tax.

Section 234C – Interest on deferred payment of advance tax

Section 234C of the Income Tax Act imposes a 1% monthly interest rate on late advance tax payments, calculated from each due date until the full amount is paid.

Section 276CC of Income Tax Act – Penalty for late filing

If you don’t file your ITR on time, you could face penalties and even imprisonment under Section 276CC. The Finance Act of 2023 states that failing to file your return or respond to tax notices under Sections 139(1), 142(1)(i), 148, or 153A can lead to serious consequences under Section 276CC.

Income Tax Filing Due Dates for FY 2024-25 (AY 2024–25)

The Income Tax Return (ITR) e-filing for FY 2023-24 (AY 2024 -25) has started from 1st April 2024 and the last date to file ITR for FY 2023-24 is discussed below.

Late Filing Fee Details

Late ITR filing is possible, but you’ll need to pay a penalty. The government issues a late filing fee for taxpayers who are late for tax filing. Have a look at the details in the table below:

How to Reduce Your Tax Liabilities?

High tax payments can dent your financial well-being. Here are some proven strategies to lower your tax burden.

Make Use of Available Tax Deductions

• Under Section 80C:

One can invest in eligible financial instruments like the Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Pension System (NPS), and Life Insurance Policies. The maximum deduction available under Section 80C is ₹1.5 lakhs per annum.

• Under Section 24(b):

For a home used for non-residential purposes, you can claim up to 2 lakhs in deductions, depending on ownership and how long the property has been occupied. Additionally, you can deduct the interest paid on a home loan.

• Under Section 10(14):

If you live in rented accommodation and rent out a house, a portion of the House Rent Allowance (HRA) can be claimed as a tax benefit.

Make Investments into Tax-advantaged Accounts

• You can get tax deductions for contributions to retirement accounts like NPS and EPF, as well as for health insurance premiums under Section 80D for yourself, family members, and parents.

Make Use of the Tax Benefits Available for Education and Medical Expenses

The following tax benefits on education and medical expenditures can be used to lower your tax assessment:

Education Expenses

(Section 80E)

Education Loan Interest: Deductions can be claimed on interest paid for education loans for higher studies expeditions. Such an option is available for a maximum of 8 years with no capping on the amount for a taxpayer.

Section 10(14)

Scholarships: If the individual receives financial assistance for his education, then no tax is applicable to that amount.

Medical Expenses

(Section 80D)

Health Insurance Premiums: For promoting individual, spouse and dependent children’s health insurance a maximum of ₹25000 can be claimed on health insurance premiums and for parents ₹ 25000 (over 60 years ₹ 50000).

(Section 80DDB)

Medical Treatment: You can deduct medical expenses for specific illnesses defined by the government. If you are under 60, you can claim up to ₹40,000; if you are 60 or older, you can claim up to ₹1 lakh.

Importance of Filing Income Tax Returns (ITR)

The importance of filing income tax returns promptly should not be underestimated. It not only fulfils a legal obligation but also serves as a gateway to financial stability, access to benefits, and opportunities for growth. If not submitted on time, a penalty for late ITR filing is charged.

Legal Compliance and Civic Responsibility

Filing income tax returns is a fundamental legal obligation for every eligible citizen. By fulfilling this duty, individuals contribute to the functioning of their nation and its infrastructure. It ensures the government has a reliable source of revenue to finance public services, welfare programs, and essential infrastructure development.

Accurate Assessment of Tax Liability

Filing tax returns provides an opportunity for individuals to assess their tax liability accurately. By reporting their income, deductions, and credits, taxpayers can determine the precise amount of tax they owe or, in some cases, become eligible for refunds. It is through this meticulous process that individuals can avoid potential underpayment or overpayment of taxes.

Building a Financial Profile

Consistently filing tax returns demonstrates financial responsibility and helps individuals build a robust financial profile. This can prove beneficial when applying for loans, mortgages, or even rental agreements. Lenders and financial institutions often consider tax returns as crucial documents to assess an individual’s financial stability and creditworthiness.

ITR Not Filed for the Previous Financial Years

Here are a few of the points to consider if you haven’t filed your Income Tax Return (ITR) for previous financial years:

• Additional Penalties and Interest: Late filing can result in penalties and interest charges. The penalty amount will vary depending on how late you are filing and if any tax is due.
• Forfeiture of Benefits: Not filing your tax returns may prevent you from offsetting future income with past losses, resulting in a higher tax burden.
• Legal Implications: If you do not file your tax return sooner than expected or for too long, you may face legal complications like audits and penalisation from the Tax authorities.
• Loan and Visa Issues: Not filing ITRs can raise red flags during loan approvals or visa applications, considering the fact that most financial institutions, as well as embassies, require a record of your complete taxes.

Steps to Place Condonation of Delay Request to File Previous Year Return

Instructions for submitting a request for approval of late filing for a previous year’s tax return are mentioned below.

Check Eligibility

Verify your eligibility for delay condonation by examining the guidelines of the Income Tax Department. Usually, this pertains to authentic situations where the postponement was caused by factors outside of your influence.

Collect Documentation

Gather all required paperwork, such as income details from the previous year, TDS certificates, and any communication addressing the delay.

Create a Formal Demand

Write a thorough letter requesting condonation for the delay. Technology has completely transformed the way we communicate with each other.

• Provide your PAN information and contact details.

• The year of evaluation for which you are seeking forgiveness.

• An explicit reason for the delay.

• Documentation and evidence of earnings for the specified year.

Make a Request Online

• Sign in to the online platform to file income tax.

• Go to the “Services” category and choose “Condonation of Delay” in the “Request” section.

Complete the form, including your letter of request and any supporting papers, and hand it in.

Submit a physical request

You have the option to hand in your request in person at the nearby Income Tax office. Make sure to include your request letter and documents along with the physical form provided by the tax office.

Keep Track

Keep an eye on the progress of your request by checking the e-filing portal or reaching out to the tax office. Be ready to give more details or participate in hearings if needed.

Submit the Return

After your request is granted, quickly submit the late return either through the e-filing portal or directly with the tax office.

Get Advice from a Tax Expert

If you’re not sure about any part, consult with a tax consultant for help with following procedures correctly.

Wrapping Up

From financial penalties and interest charges to potential legal repercussions and a tarnished reputation, the negative impact of procrastinating on tax obligations can be significant. Late filers not only face immediate financial burdens but also risk long-term consequences such as damaged credit history, restricted access to loans, and strained relationships with tax authorities.

To avoid these detrimental outcomes, it is crucial for individuals and businesses to prioritise timely tax filing, maintaining compliance with tax laws, and fulfilling their civic responsibilities. By understanding and appreciating the gravity of the consequences, we can cultivate a culture of accountability and responsible tax management, contributing to a more robust and equitable financial system for all.

Key Takeaways

• Filing income tax returns promptly is crucial as it fulfils a legal obligation and opens doors to financial stability, benefits, and growth opportunities.
• It allows for an accurate assessment of tax liability, ensuring individuals pay the correct amount and avoid potential underpayment or overpayment of taxes.
• Consistently filing tax returns helps build a strong financial profile, which can be advantageous when seeking loans, mortgages, or rental agreements.
• Late filing of tax returns comes with burdensome consequences, such as penalties and interest charges, leading to potential legal issues.

FAQs on Penalty for Late Filing of ITR