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Penalty For Late Filing of ITR: Everything You Need to Know

Published on Jan 19, 2024Updated on Jan 31, 2024

Penalty For Late Filing of ITR: Everything You Need to Know

As a taxpayer, if you are unaware of the penalties for late filing of your ITR, understanding the consequences is crucial. Failing to submit your income tax return on time incurs significant penalties for late filing. The late tax payment penalty can range from a fixed fine to accumulating interest charges, as governed by income tax late filing penalty regulations. The fine for a late tax return can escalate based on the duration of the delay and your total taxable income. This article discusses the consequences of late ITR filing, penalties, and tips to avoid these penalties.

Importance of Timely Income Tax Return (ITR) Filing

Filing your income tax returns (ITR) on time is a legal requirement and highly beneficial for you. Delaying the submission beyond the deadline incurs penalties. Additionally, failure to pay owed taxes punctually results in accruing interest on the outstanding amount. Prompt filing not only adverts these fines and interest fees but also enables eligibility for refunds, including benefits like refunds on new savings or PPF accounts. Timely filing positively impacts your financial history and helps keep credit scores essential for loan approvals and credit card allocation.

Understanding Late Filing Penalties

The government opens a four-month window for taxpayers to file income tax returns after combining all income from various sources during the relevant financial year. Usually, this four-month window starts from April 1 to July 31. Most people think that after paying taxes, they have no other obligation. Late filing of an ITR has legal consequences, which include a late filing fee.

1. Statutory Basis

Penalties for late filing of Income Tax Returns (ITR) are governed under Section 234F of the Income Tax Act of 1961. According to this section, individuals are required to file ITR forms under the Income Tax Law but fail to do so within the stipulated time frame and must pay late fees, the amount of which is determined by their total income.

2. Calculation of Late Filing Penalties

Late filing fees for income tax returns vary based on income brackets. If the total income exceeds INR 5 lakh and the return is filed after the due date, the fee amounts to INR 5000. For incomes equal to or below INR 5 lakh with delayed filings, the fee stands at INR 1000. Individuals with total incomes not exceeding INR 2.5 lakh are exempt from late filing fees.

3. Differentiated Penalties for Individuals and Businesses

The ITR filing due dates and penalties are different for individuals and businesses. Businesses requiring an audit have a due date of October 31st, while businesses that need a TP report have a due date of November 30th. In case of failure to file tax returns, a fine of INR 10,000 will be imposed as per Section 234F of the Income Tax Act.

4. Legal Consequences

Late filing of Income Tax Returns (ITRs) not only incurs penalties but also attracts interest charges and legal consequences. Severe cases of non-compliance may lead to prosecution, resulting in imprisonment or fines. Furthermore, directors could face disqualification for up to 5 years, and the company may lose eligibility for government contracts or facilities due to non-filing of ITRs.

Due Dates for ITR Filing

It is imperative to know the due dates of ITR filings to avoid penalties for late filings. Different categories of taxpayers have different due dates. For individuals and entities not liable for tax audits, the due date for ITR filing is July 31, 2024. Taxpayers under tax audit (except transfer pricing) have until October 31, 2024, while those under transfer pricing have until November 30, 2024, to file. Revised or belated returns for FY 2023-24 can be filed until December 31, 2024. Failure to meet these deadlines incurs penalties and fines. It's crucial to adhere to these timelines to avoid the penalty for late filing of income tax returns, late tax payment penalties, and the associated fines for filing late income tax returns. Meeting these due dates is essential to avoid any financial implications from late filings.

Common Reasons for Late ITR Filing

While there are many reasons that people give for late ITR filing, there are a few common reasons that can’t be ignored. Lack of awareness about due dates and tax requirements, financial constraints affecting prioritization, incomplete documentation, and technological hurdles often lead to delays. Knowing about these reasons helps you grasp potential obstacles and enhance timely ITR submissions.

1. Lack of Awareness

Many individuals find it challenging to file their Income Tax Returns (ITR) on time, primarily due to a lack of knowledge about the necessary filing requirements. This lack of understanding often leads to confusion regarding the due dates, essential forms, or changes in tax laws, which eventually results in inadvertent delays in filing ITR.

2. Financial Constraints

Financial difficulties can pose a challenge to filing taxes promptly. When individuals face financial constraints, they may have to choose between paying for immediate expenses and fulfilling their tax obligations. As a result, they may end up delaying the submission of their Income Tax Returns (ITR).

3. Documentation Issues

One of the biggest challenges that people face is incomplete or missing documentation. This includes crucial documents like income statements, investment proofs, and receipts that are needed to support the ITR. In case such documents are not gathered and organized within the stipulated time, it can lead to delayed ITR submissions and potentially even legal consequences.

4. Technological Challenges

For some people, filing Income Tax Returns online can be a daunting task. The intricate technological features, combined with limited digital literacy, can make it challenging to navigate and access the online filing portals. As a result, many individuals experience delays in submitting their returns accurately and on time.

Must Read: How to e-Verify your Income Tax Return (ITR)

Consequences of Late ITR Filing

Late filing of income tax returns (ITR) can lead to various severe consequences. Not adhering to the deadlines can result in financial penalties. Moreover, it invites legal ramifications such as notices, prosecution, fines, or imprisonment. Additionally, delayed filings negatively impact credit scores and jeopardize benefits and deductions, disrupting financial stability and planning.

1. Financial Penalties

If you miss the deadline for filing your income tax returns, it could lead to severe consequences. According to the Income Tax Act, the penalties for late filing of returns can range from INR 1,000 to INR 5,000, depending on your income.

2. Legal Ramifications

Failing to file your Income Tax Return (ITR) within the specified deadline can have severe consequences. The tax authorities may initiate legal actions, such as issuing notices or prosecuting you. In extreme cases, you may face hefty fines or imprisonment for several years. It is, therefore, essential to file your ITR on time to avoid any legal complications and safeguard your financial interests.

3. Impact on Credit Score

Late filing of income tax returns can negatively impact your credit score due to several factors. It reflects poorly on your financial responsibility, affects your payment history, and indicates possible financial instability. This delay may deter lenders, reducing your creditworthiness and opportunities for loans or credit extensions.

Must Read: How to Increase CIBIL Score from 500 to 750?

4. Loss of Benefits and Deductions

When you file your income tax returns (ITR) late, it can seriously affect your benefits and deductions. You may lose access to deductions, refunds, or the ability to carry forward losses. When you submit your returns after the deadline, it limits your financial advantages, which can impact your tax planning, potential savings, and overall financial stability. Late filings can disrupt financial strategies and lead to significant setbacks in financial planning.

Waiver and Appeal Process

1. Conditions for Penalty Waiver

To seek penalty waiver under Sections 273A (1) and (4) of the Income Tax Act, specific conditions must be met by the taxpayer. These are:-

  • Taxpayers must disclose all income details and inaccuracies in good faith before being detected by the assessing officer.
  • Taxpayers must provide full cooperation in cases of inquiries.
  • Taxpayers must pay their taxes or arrange satisfactory payments for any tax liabilities resulting from assessment orders under Section 273A.

If the taxpayer meets these conditions, the Principal Commissioner or Commissioner may waive the penalty.

2. Filing an Appeal Against Penalties

To file an appeal for penalties, you must fill out Form 35. Once you submit the form, the Commissioner of Income-tax (Appeals) will schedule a hearing and send notices with the details to both the appellant and the Assessing Officer. Throughout the appeal process, individuals or their representatives can attend the hearing. The Commissioner may ask for more information or delay the process. It's important to try this remedy before going to court for income tax disputes.

3. Documentation Requirements for Appeals

The following documents are needed for filing appeals:-

  • Form 35
  • A copy of the Challan for payment of income tax relevant to the assessment
  • Original demand notice by the authorities
  • A copy of the assessment order

Tips to Avoid Late Filing

1. Calendar Reminders and Alerts

Using digital calendars or mobile apps to set up reminders is a good idea to ensure you don't miss any tax deadlines. This helps you stay aware of when your tax documents are due, so you can submit them on time and avoid penalties. By using regular alerts, you can ensure you meet your tax obligations.

2. Professional Assistance

Hiring qualified tax professionals or certified accountants is best for accurate tax guidance. They have the expertise to ensure you follow tax regulations, minimize errors, and file on time. This will relieve you from the burden of complex tax procedures and help you comply with legal requirements.

3. Utilizing Technology for Timely Filing

Consider using tax software and digital platforms that offer automated filing solutions to make filing taxes more manageable. These tools streamline the process, remind you of important deadlines, and simplify your tax obligations. User-friendly interfaces make it easy to use and reduce the chances of missing important deadlines.

4. Understanding Applicable Deductions and Credits

To make filing your taxes more manageable and ensure you get the most money back possible, you must learn about the deductions and tax credits you are eligible for. Understanding the available benefits can help you file your taxes accurately and quickly, without any delays. This means you can submit your returns on time and avoid any issues.

Conclusion

For every taxpayer, understanding the penalties for late filing of Income Tax Returns (ITR) is vital. Timely submission avoids financial penalties, legal repercussions, and adverse effects on credit scores and tax benefits. Adhering to due dates and seeking professional guidance mitigates risks. Awareness of the common reasons behind late filings equips individuals to overcome hurdles.

Comprehending consequences emphasizes the importance of timely compliance, safeguarding financial stability, and legal compliance. It is imperative to file your tax returns on time to maintain your good credit score, which further increases your chances of getting a personal loan. SMFG India Credit offers an instant, seamless online application process for personal loans up to INR 25 lakhs*. These loans come with no hidden charges and a flexible tenure.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

FAQs

What is the deadline for filing ITR?

When it comes to filing ITR, the deadline for individuals and entities not liable for tax audits is usually on July 31st of the assessment year. However, there are extended deadlines for specific cases, such as audit cases or transfer pricing.

How are late filing penalties calculated?

Late filing penalties are calculated under Section 234F of the Income Tax Act, 1961, based on the date of filing and total income. For instance, if the total income exceeds INR 5 lakhs and the fee isn’t paid till 31st July, the fee is INR. 5,000. If the income is less than INR 5 lakhs, then the penalty is INR. 1,000.

Are there exceptions to late filing penalties?

In some cases, taxpayers may be exempt from paying penalties for late filing. This is especially true if their total income is below the taxable limit or if they find themselves in specific circumstances. It's important to note that not all taxpayers will qualify for this exception.

Can penalties be waived under certain circumstances?

Yes, income tax penalties can be waived under certain circumstances if the taxpayer demonstrates a reasonable cause for defaults and fulfills necessary conditions like full disclosure of income and facts.

What documentation is required for penalty appeals?

The documentation required for this process includes Form No. 35, which must be filed in duplicate. In addition to this, it is also mandatory to submit a certified copy of the order, the original demand notice, and detailed information on the challan. By ensuring that all of these documents are in place and meet the submission requirements, you can make the process more efficient.

How does late filing impact tax refunds?

Late filing of Income Tax Returns (ITR) hampers tax refunds as they're only processed post filing. Delays or overdue filings can severely slow down or even forfeit tax refunds, affecting financial planning, deductions, and the ability to carry forward losses, undermining potential savings and overall financial stability.

Are there penalties for incorrect or incomplete filings?

Yes, penalties exist for incorrect or incomplete Income Tax Returns (ITR) filings. Errors in the deduction and exemption sections of the ITR form can lead to significant repercussions, such as annual interest charges of 12%, penalties up to twice the tax amount, and even criminal prosecution, as per the Income Tax Department's warnings for the Assessment Year 2023-24.

How does late filing affect tax compliance status?

If you file your tax returns as belated returns before December 31 (in the extended deadline) of the assessment year, you only face penalties. But if you fail to file your income tax returns by the extended deadline, you might also face potential penalties for non-compliance.

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