If you are among those taxpayers who have not yet filed their income tax return (ITR) for the financial year 2016-17, or the assessment year (AY) 2017-18, you must have received emails and messages from the income-tax department reminding you to file the tax return by 31 March 2018. You must remember that if you had income that was above the exempted limit during FY2016-17, then it is mandatory for you to file a tax return. If you had income that was less than the threshold limit for taxes to apply, but you deposited a considerable amount of cash in your bank accounts during the demonetization period, you should file a tax return.
What’s different this time around is that unlike previous AYs, when late tax returns could be filed even one year after the end of the relevant AY, now if you don’t file the ITR for the AY 2017-18 by 31 March 2018, you won’t be able to file it later.
The last date to file tax returns is usually 31 July of each AY. Assessment year is the year in which we assess income, pay taxes and file tax return for the previous year or the financial year. So, for financial year 2016-17, the AY is 2017-18. The last date to file the tax return for financial year 2016-17 was 31 July 2017, which was later moved to 5 August 2017. A tax return filed after the due date of that year is considered belated return.
“Starting AY 2017-18, belated returns can be filed before the end of the relevant AY, that is, by 31 March 2018 (this year) or before completion of assessment, if any," said Archit Gupta, chief executive officer and co-founder, Cleartax.in. Until a year ago, till financial year 2015-16, taxpayers had more time, and they could file belated returns before the end of two years from the end of the relevant financial year, said Gupta.
By 31 March 2018, you can do two things: one, you can file the tax return of financial year 2016-17; and two, you can also file the same for financial year 2015-16.
Not filing a tax return on time has consequences, and you will lose out on some benefits.
For starters, there are penalties and interest levied on the income tax that was due. “The person who files a belated return for AY 2017-18 may be subject to a penalty of Rs5,000 under Section 271F of the Income-tax Act, 1961," said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
Apart from the penalty, interest too may be levied under various sections. “If any tax is due, interest may have to be paid under sections 234A, 234B and 234C of the Act," said Gupta.
From the next AY, 2018-19, a fixed amount of penalty will be charged on belated tax returns. “Section 271F will get replaced by section 234F, which prescribes a late fee of Rs5,000 if the return is filed after due date and up to 31 December, and Rs10,000 (from 1 January) up to 31 March of AY. However, if the total taxable income of a person doesn’t exceed Rs5 lakh, late fee shall not exceed Rs1,000," said Maheshwari.
Besides penalty and interest, there are other disadvantages to filing tax returns late. One of these is not being able to carry forward capital losses. Certain losses like those from business and profession and short-term capital loss may not be allowed to be carried forward.
If there is any refund, it may be delayed and taxpayers will not receive interest on refund from 1 April of the AY. Interest will be paid from the date on which the tax return was furnished till the date on which refund is granted. “If return is filed within the due date, interest is paid effective 1 April of the AY to the date on which refund is granted," said Gupta. Say, you were eligible for a refund of Rs10,000; you filed the ITR in June, which is before the due date (31 July); and you get a refund in September. In this case, you will get interest on the refund from April till September. But if you file late, say, in October, and you get refund in December, you will get interest on the refund only from October till December.
Besides the penalties and other disadvantages that a belated tax return invites, the income-tax department can send you a notice of inquiry (under section 142(1)) or a notice of income escaping assessment (section 148). Through these notices, it can seek clarification on why the tax return was filed late, and you will be asked to file the return online as per the date specified in the notice. There may also be penalties.
If you don’t receive any notice and you have a genuine reason for not having filed the return, “you may send a written request to the AO (assessment officer) for filing a return," said Gupta. You can do this even after the last date, that is 31 March of the AY, but the permission will depend on AO’s discretion.
If you don’t reply to the notice or don’t file your return within the stipulated time mentioned there, your problem can escalate, depending on the tax due. “If the person has taxable income and still doesn’t file a tax return, then in addition to penalty for non-filing of return, the person may also be subject to a penalty for under-reporting of income at 50% of the tax payable on under-reported income," said Maheshwari. Criminal proceedings, too, can be initiated in some cases.