Late Income Tax Return Filing: Penalties, Consequences, and Financial Impacts

The Income Tax Department mandates taxpayers to submit their annual Income Tax Returns ( ITRs ) within a specified timeline. Failure to comply with this statutory obligation can result in penalties and unfavorable consequences.

This article explores the consequences of late filing, the availability and implications of tax extensions, and strategies to mitigate financial impacts.

Decoding the Due Dates

The deadline for filing ITRs varies based on the nature of the taxpayer and their income sources. For the Financial Year (FY) 2023-24 (Assessment Year AY 2024-25), the crucial due dates are:

• July 31st, 2024: For individuals and entities not subject to tax audits.
• October 31st, 2024: For taxpayers required to undergo tax audits, excluding transfer pricing cases.
• November 30th, 2024: For taxpayers involved in transfer pricing cases.
• December 31st, 2024: For filing revised or belated ITRs for FY 2023-24.

 It is essential to comply with these deadlines in order to prevent penalties and other negative consequences.

The Penalty Paradigm: Section 234F

Section 234F of the Income Tax Act imposes a late filing fee for taxpayers who fail to file their ITRs within the stipulated timeframe. For FY 2023-24, the penalties are as follows:

• No Penalty: If the ITR is filed by July 31st, 2024.
• Rs. 1,000: For taxpayers with a total income below Rs. 5 lakhs, if the ITR is filed between August 1st, 2024, and December 31st, 2024.
• Rs. 5,000: For taxpayers with a total income exceeding Rs. 5 lakhs, if the ITR is filed between August 1st, 2024, and December 31st, 2024.

It is crucial to note that these penalties are applicable even if there is no outstanding tax liability.

Read More: Woman Gets 6-Months Imprisonment for Rs. 2 Cr ITR Non-Filing

Consequences of Late Filing

Even though the financial penalties might seem insignificant, filing an ITR after the deadline has far-reaching consequences. Not meeting the deadlines can result in:

1. Implications of Interest Section 234A of the Income Tax Act requires you to pay interest at the rate of 1% per month, or a part thereof, if you owe money on your taxes. Interest is calculated from the day after the due date until the date of actual payment.
2. Disallowance of Expenses and Deductions If you don’t file your return on time, some of the deductions and expenses you claimed in your ITR—like business or medical expenses—may be disallowed.
3. If ITR is not filed by the deadline, losses incurred in the financial year—aside from losses related to real estate—will not be carried over to the following year. This may have significant impacts on your ability to lower your tax liability and offset future gains.
4. If you file your ITR after the deadline and are eligible for a refund from the government for overpaid taxes, the processing and eventual payment of the refund will be delayed.
5. If you engage in severe and deliberate tax evasion, the Income Tax Department may bring criminal charges against you, which could result in imprisonment and other penalties.

Read More: ITR-on-time or Jail Time? Know the Penalties for Non-Filing of Income Tax Returns

The Benefits of Timely Filing

While the consequences of late filing are significant, adhering to the due dates provides numerous benefits:

1. Easy Loan Approvals

Financial institutions frequently request copies of your ITRs as proof of income and financial stability. Timely filing demonstrates your responsibility as a taxpayer and can help loan approval processes run more smoothly.

2. Prompt Refund Processing.

By filing your ITR on time, you can speed up the processing of any tax refunds you are entitled to, resulting in a faster receipt of the funds.

3. Efficient Visa Processing

Many countries require applicants to provide copies of their most recent ITRs as part of the visa application process. Timely filing can help to streamline the visa process and reduce potential delays.

4. Preservation of Loss Carry-Forward

Filing your ITR within the due date allows you to carry forward eligible losses to subsequent years, enabling you to offset future gains and potentially reduce your tax liability.

5. Avoidance of Penalties and Interest

By adhering to the prescribed deadlines, you can avoid the imposition of late filing penalties and interest charges, thereby minimizing additional financial burdens.

Options for Belated Filing

There are two primary options available to you if you failed to file your ITR by the deadline in prior financial issues years:

1. Request for Condonation of Delay (Section 119)

You can submit an application to your jurisdictional income tax officer under Section 119(2)(b) of the Income Tax Act, providing for a valid reason for the lapse and a condonation of the delay.

Upon approval of the application, you can proceed with filing your ITR for the relevant financial year.

Read More: Failure to file ITR on Grounds of Illness and Demise of CA: Madras HC Condones Delay of 927 Days

The process involves:

1.           Submitting an application to the jurisdictional officer, citing the reason for the delay.

2.           Responding to any notices or information requests from the department.

3.           Upon approval, completing the ITR filing process on the income tax portal.

2. Filing an Updated Return (Section 139(8A))

Section 139(8A) of the Income Tax Act allows you to file an updated ITR within two years from the end of the relevant assessment year. However, this option is applicable only if the updated return results in additional tax liability. If it leads to a refund or no tax liability, you cannot file an updated return under this section.

The penalties for filing an updated return are as follows:

• Within 12 months from the end of the relevant assessment year: 25% of the additional tax liability, plus interest and late filing fees.
• Between 12 and 24 months from the end of the relevant assessment year: 50% of the additional tax liability, plus interest and late filing fees.

Following the deadlines for filing ITRs is not only required by law but also a prudent financial decision. You can minimise penalties, interest charges, and potential legal consequences by filing on time. You can also take advantage of easy loan approvals, quick refund processing, and efficient visa processing.

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