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Self-assessment tax is what needs to be paid after excluding advance tax, TDS and other tax credits. If a tax payer has such dues over  ₹1 lakh after end of July, it will attract interest at the rate of 1% a month, say experts.
Self-assessment tax is what needs to be paid after excluding advance tax, TDS and other tax credits. If a tax payer has such dues over 1 lakh after end of July, it will attract interest at the rate of 1% a month, say experts.

The pitfall to avoid while availing extra time to file tax returns

  • The extension of the date for filing FY20 income tax returns to Nov end came with the rider that the due date for filing self-assessment tax—any dues after taking into account taxes already paid—has been extended only for those with such dues up to 1 lakh

New Delhi: A rider that the government inserted in June while giving extra time for filing income tax returns for FY20 could cost high net worth individuals additional interest outgo if large tax dues were not paid by July end, cautioned tax experts.

The finance ministry on 24 June allowed assessees to file their income tax returns for FY20 by end of November due to the difficulties posed by the coronavirus crisis. The earlier due date for individuals was end of July. But the ministry also put in the rider that the due date for filing self-assessment tax—any dues after taking into account taxes already paid—has been extended to November end only for those with such dues up to 1 lakh.

Self-assessment tax is what needs to be paid after excluding advance tax, taxes deducted at source (TDS) and other tax credits. If a tax payer has such dues over 1 lakh after end of July, it will attract interest at the rate of 1% a month, experts pointed out.

That is, a person with about 3.3 lakh income on which taxes were not paid previously in any form may be subject to interest liability after end of July, taking 30% as the applicable tax rate. In effect, the due date for filing tax returns is extended, but not for remitting any dues above the threshold specified. The finance ministry’s effort was to give relief to small and middle-class taxpayers, it said in a statement on 24 June.

The notification was a welcome one, but the proviso making all assessees with more than 1 lakh in tax dues to pay interest under section 234A of the Income Tax Act is unfair, said Arun S. Kutty, senior partner at Virmani, Roy & Kutty, a chartered accountancy firm. Persons who have sold their house property and have capital gains are allowed to reinvest in another property by end of September to get capital gains tax relief, but if they decide not to do so and pay the taxes instead, they will have to pay the 1% interest from July till the date they pay taxes, explained Kutty, adding that date of levying interest could start from 30 September in such cases.

“Taxpayers who have a large tax due must immediately compute their tax liability and interest thereon and deposit it with the government to avoid accumulation of penal interest, if they are concerned about it. Income Tax return can then be filed in due course," said Archit Gupta, founder and chief executive officer of ClearTax, a tech firm offering tax payer services.

In the case of salaried employees, the last date for issuance of Form 16 was extended to 15 August. Unless this is provided, assessees cannot make an accurate assessment of his total taxes, which makes it unfair to make them pay the interest from 31 July, explained Kutty.

In the case of salaried people, it is usually interest on bank deposits and capital gains taxes that tend to get not included in their regular tax payment which they make up for at the time of return filing as self-assessment tax.

According to Sandeep Jhunjhunwala, partner at Nangia Andersen LLP, a consultancy, easing the compliance burden by extending the due dates for filing income tax returns to November end was a welcome move but taxpayers facing financial challenges were also expecting an extension in due dates for payment of self-assessment tax beyond 31 July 2020. “Given the economic crisis caused by the pandemic, it is likely that many taxpayers may not have been able to deposit self-assessment tax due by 31 July, and hence will find themselves paying interest on delayed tax remittance," said Jhunjhunwala.

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