If a taxpayer didn’t file her ITR on or before 31 July and has outstanding tax to be paid, she will be charged a monthly interest of 1% on the outstanding tax amount
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The income tax department, last week, extended the deadline for filing income tax returns to 31 December from 30 September. However, there is no relief on interest penalty for taxpayers who have an outstanding tax liability above ₹1 lakh and are late in filing their returns.
On 9 September, a notification by the Central Board of Direct Taxes (CBDT) said “the extension of the dates … shall not apply to explanation 1 to section 234A of the (IT) Act."
What this means is that if a taxpayer didn’t file her ITR on or before 31 July and has outstanding tax to be paid to the IT department, under section 234A she will be charged a monthly interest of 1% on the outstanding tax amount. This penalty will be levied only on those whose outstanding tax is above ₹1 lakh after removing advance tax or TDS that might have already been paid.
“The original due date was 31 July 2021. This was first extended to 30 September 2021 and now it has further been extended to 31 December 2021. We should understand that interest u/s 234A of I-T Act would be chargeable now, only if outstanding tax payable is more than Rs1 lakh and it would be levied from 1 August 2021 till date of filing of return at the rate of 1% per month," explained Sujit Bangar, founder, Taxbuddy.com.
The interest charged is simple interest and will not compound each month. To give an example, if your outstanding tax liability is ₹1.3 lakh, you will have to pay ₹1,300 every month till the date you file your ITR. Since the interest is calculated on a monthly basis and kicks in at the start of each month past the original due date, if you file your ITR even on the first day of any month, you will still have to pay the full interest amount for that month.
Hence, it is advised that you pay your pending tax, if any, at the earliest. “It’s advisable to compute tax immediately even if ITR may be filed later. This may help us in saving interest. After paying the outstanding tax, which is done through net banking, one can file ITR anytime before 31 December," said Bangar.
This move does not impact small taxpayers who are likely to have tax liability under ₹1 lakh.