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Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

What if you do not meet the 31 August tax deadline?

Consequences of not paying tax on time and not filing tax returns on time go beyond paying penal interest

This year, the deadline to file income tax returns (ITR) has been extended to 31 August from 31 July. Here is what happens if you miss the deadline for filing returns.

Under the income tax law, if you don’t file your ITR within the deadline (31 August for assessment year 2015-16), you can still file returns within two years from the end of the relevant financial year. This means, that you can file returns for financial year 2014-15 till 31 March 2017. Also remember that if you file belated returns, you can’t revise the filing of I-T returns in case of any error. The window for revised filing of returns is open only if you file your I-T returns by the deadline.

Scenario 1: If you are a salaried person, and your employer has deducted tax, in case you fail to file returns by the due date, you have the option to file returns by 31 March 2017. However, for filing late returns you may have to pay a penalty of 5,000, on the tax authority’s discretion for the offence of not filing returns on time. You will have to pay the penalty after you receive a notice from income tax officials for filing late returns.

Not being punctual with tax filing has other disadvantages. For instance, if you have capital loss, then this cannot be carried forward if return is not filed within the due date. If filed on time, you can carry forward the loss up to the following eight years to be set off against a future income.

Here’s an example. Say, you have a short-term capital loss of 2 lakh in 2014-15 and a gain of 3 lakh in 2015-16. If you file tax returns before 31 August 2015, you will be able to carry forward the loss and set it off against the capital gains, which means you would be taxed only on 1 lakh in 2015-16. If you fail to file the return by 31 August 2015, then you will lose the benefit of carrying forward the loss and will have to pay tax on 3 lakh.

Losses such as business loss (speculative or otherwise) and loss from the activity of owning and maintaining race horses can’t be carried forward if return of loss is not submitted on time. If you have loss from house property, you still can carry forward the loss.

Scenario 2: If you have a source of income apart from salary, such as income from fixed deposit interest, capital gains or rental income, and if the tax liability is more than 10,000, then you should have paid advance tax by 31 March 2015. If you have not done this, then you have to pay the self-assessment tax and file the ITR by 31 August 2015.

If you miss this deadline, then the return should be filed by 31 March 2016. Beyond that, you expose yourself to penalty of 5,000 by the assessing officer.

If the net advance tax due is more than 10,000, and you do not pay this on time, a penalty of 1% (simple interest) every month of the tax amount will be levied, under sections 234(B) and (C) of the Income-tax Act, 1961.

The interest will be calculated till the end of the month in which you pay the tax. However, no penalty will be levied if you file return by 31 March 2016.

The penalty for late tax payment is not restricted to 5,000, and the penal interest. The consequences can be more severe—the taxman can prosecute you, and you may even be sent to prison for three months to seven years.

Filing ITR serves other purposes as well. For instance, if you go to take a loan, one of the documents required would be ITR of at least three years. If you have not filed returns for even one of these three years, your application may be rejected due to lack of adequate documentation. If you apply for a visa, many countries require you to furnish the most recent ITR. Even to buy a life insurance policy with a higher sum assured, you are required to give proof of income which could be ITR. So, the consequences of not paying tax on time and not filing tax returns on time go beyond what the taxman can do.

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