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“I have paid my taxes, then why should I file my Income Tax returns?” Young readers ask us this question. This a perception among many people, most of them, salaried that as TDS has been deducted filing of returns is not important, because after all, the government’s main objective is to ensure that it’s getting the tax due to it. But your job does not end at paying taxes, filing returns is equally important. It is our constitutional obligation to file tax returns. Let’s look at why it is important to file Income Tax return, why you should file Income tax returns on time, disadvantages of filing returns after the due date.

When is it mandatory to file Income Tax Return?

The income tax return is a prescribed form through which the particulars of income earned by a person (individual, company, HUF etc.) in a financial year and taxes paid on such income is communicated to the Income-tax department at a specified time.

An Individual taxpayer is required to furnish his or her return of income if the person’s gross taxable income ie, total income under all five heads of income before claiming exemptions, exceeds the basic exemption limit for the relevant assessment year. It is essential to file returns when your total gross income exceeds the basic exemption limit even if taxes due are NIL as per Income Tax section Section 139(1). Basic Exemption limit for FY 2018-19 or AY 2019-20 is Rs 2,50,000 (for those less than 60 years) Rs 3,00,000(for those between 60 to 80 years) and Rs 5,00,000(for those above 80 years)

To file an Income Tax Return is an obligation placed on every citizen of India by the Government. (this is true in other parts of the world too). Non-filing of Income Tax Return attracts interest, penalty, prosecution and scrutiny from the Income Tax Department. You will end up getting a notice from the income tax department if your income is above the exemption limit and you haven’t filed ITR, as shown in the image below.

  • Your gross total income (before allowing any deductions under section 80C to 80U) exceeds Rs 2.5 lakhs in FY 2018-19. This limit is Rs 3 lakh for senior citizens (aged above 60 but less than 80) or Rs 5 lakhs for super senior citizens (aged above 80).
  • If you have a refund due, as more taxes have been deducted, you need to file your Income Tax Return, to claim this refund.
  • It is mandatory to file your Income Tax Return, if you have any Foreign Assets, even though you may not have any taxable income. Any resident individual who holds beneficial interest in any asset situated outside India (including financial interest in any entity outside India) or who has signing authority in a foreign bank account is also required to file ITR, irrespective of his gross total income
  • You want to carry forward a loss under a head of income

From assessment year 2020-21, a few more categories of people will need to mandatorily file ITR, as per Budget 2019 irrespective of their income level.

  • Those who withdraw more than ₹1 crore from their current bank account in a year,
  • or pay an electricity bill of ₹1 lakh or more, or
  • pay more than ₹2 lakh for foreign travel during the current financial year will also be required to file their ITR in 2020-21

Failure to file Income Tax Return at the end of the relevant financial year attracts a penalty even though tax payable is Nil, 

  • It is proof of your financial life.
    •  Income Tax Return is essential for making any investment and goes to prove that you have a valid source of income to make such investment.
    • When you file Income Tax Return, you create your Financial Record with the Tax department. This financial history is needed when you avail any kind of loan (home, personal, vehicle loan) or when you apply for VISA, etc.

For Govt it is accounting that all taxes due from you have been collected.

This is also an opportunity for the taxpayer to look at his income, taxes paid and his financial life. To do an audit.

Income Tax Notice for those who did not file ITR

What happens if you don’t file your ITR? or If you miss the due date of filing of ITR

If you have missed filing ITR on the due date, you can file your ITR with the penalty. As per the new law, Late Filing Fees u/s 234F will be levied. The Late filing fee

  • is a penalty of Rs 5,000 will be levied if the return is filed after the due date but before December 31 of that year and
  • Rs 10,000 post-December 31 to Mar 31.

However, if your income is not more than Rs 5 lakhthe maximum penalty levied will be Rs 1,000.

If there is some tax due then you would have to pay interest on the tax due under section 234A/234B/234C

Before FY 2018-19/AY 2019-20 If you don’t file your returns, you might be fined and penalised. One had to pay interest if the return is not filed before the end of the assessment year. If the return is not filed even after the end of the assessment year, the penalty may also be levied.

What is Income?

 Usually, Income is associated with salary. But as per Income tax Department Income has a broader meaning. It is broadly defined as the increase in the amount of wealth associated with a person, family, company, trust etc during a fixed period of time. So the regular income from salary or income from the business or profession is considered as income. But also income from the sale of a house, rented house, interest from investments in Fixed Deposits or Mutual Funds(Debt, Equity) or Stocks is also considered as income. Income is classified into various categories such as:

1. Income from Salary
2. Income from House Property
3. Income from Profits and Gains of Business or Profession
4. Income from Capital Gains
5. Income from other Sources

The aggregate income under all these heads is termed as Gross Total Income.

What is the difference between Gross total income and Taxable income?

Gross Total Income is the sum of all the income earned. It is always calculated before applying any deductions from Section 80CCC to 80U.  Total Income is the Gross Total Income reduced by amount permissible as deduction under Sections 80CCC to 80U.

Let’s say, your gross total Income from all types of Income is Rs. 3,00,000. You have saved taxes by investing Rs. 20,000 in EPF, 35,000 in LIC premium for claiming deduction under Section 80C. Your Taxable Income is Rs. 2,45,000 (Rs.3,00,000 – Rs. 55,000).  This is below the exemption limit. However, even in this situation, you are required to file your Income Tax Return as your gross total Income exceeds the basic exemption limit of Rs. 2,50,000. (assuming you are not a senior citizen).

Is it necessary to file ITR if one has PAN?

It is mandatory to have a PAN card to file an ITR.

But if you have been allotted a PAN, it is not mandatory to file an income tax return if your income is less than the basic exemption limit. But you can file an Income tax Return called Nil Return. The nil income tax return is filed to show the Income Tax Department that you fall below the taxable income and therefore did not pay taxes during the year. Mostly. people file Nil Returns for record purposes for visa processing or for getting loans.

In FY 2017-18, about 67 million returns were filed, which is about 18% of the total PAN allotted.  Till 31 March 2018, about 379 million Permanent Account Numbers (PAN) were allotted to various entities. Out of these, 369 million or 97.46% PANs were allotted to individuals

What Reasons do people give for not filing returns?

When it comes to filing of income tax return, some of  common views that

  • My employer has already deducted tax on my salary income hence I don’t need to file my income tax returns!
  • I work hard & hardly find time. Why waste time on filing income tax returns.
  • The deadline for filing tax returns is far away, why bother now!
  • I have anyway missed the deadline for filing tax returns (July 31), so now it does not matter whether I file the returns or not!

How does the I-T department select cases where penalties are imposed?

An I-T officer may detect non-compliance such as not filing returns within the deadline, or not disclosing the full income. He issues a show-cause notice to the taxpayer, and if he is not satisfied with the explanation, may issue a penalty order under the relevant section of the Income Tax Act

How many years of backdated returns can you file?

The last date for filing of ITR for FY 2017-18/Ay 2018-19 was 31 Mar 2019. You now cannot file a return for FY 2017-18 or AY 2018-19 or for earlier years. What can you do?  You may receive a notice from the Income Tax Department with penalty charges for not filing ITR. The alternatives and the risk for not filing the ITR vary from individual to individual depending on their tax due. You should pay off your income tax liability as soon as possible rather than waiting for the Income Tax Notice. You can also apply for Condonation of Delay in Filing ITR Section 119(2)(b) within 6 years of from the end of the assessment year for which income tax return has to be filed. Our article Missed Filing ITR: Check Tax Liability,File Condonation of Delay, discusses it in detail.

The return filed after the due date is called Belated Return. After that it becomes time-barred, that is, cannot be filed.

Before FY 2017-18, an individual could file ITR Only one year from the end of the relevant assessment year (or 2 years from the end of Financial Year).

What are disadvantages of filing Belated Returns ie Returns after the due date?

Pay Penalty: If the return is filed beyond due date but before December 31, then fees payable will be Rs. 5,000 whereas in other cases it will be Rs. 10,000.

Pay Interest: When you still owe taxes to the government. For example: if you have income from other sources if you have worked in more than one company, etc. You will be liable to pay a penalty of 1% interest on the balance tax payable, under section 234A will be payable. The image below shows the example of how much interest is charged if one owes 1 lakh of rupees and does not pay Advance Tax on time.

Cannot carry forward of losses: You cannot carry forward business or capital losses for set off against future profits and gains. Thus, you would lose the benefit of setting off of these losses against the income of next year. However, the loss from house property does not have this limitation and can be carried forward even if the return is filed late. Further, certain deposits to reduce the capital gains liability are generally required to be made before the due date.

Reduced time for revising your income tax returns: Under the changed rules, you only have time till March 2020 to make the change (for ITRs for AY 2019-20).

Delay in the processing of returns: Once the return is filed and e-verified, the CPC(Central Processing Centre, Bangalore), of the Income Tax Department processes the income tax return. It is only then that the tax liability or refund of a taxpayer is determined. If you have any tax refund then you can file the return even after the deadline without any issue. The only disadvantage will be that your return may be processed late, which may delay the refund process.

Our article Section 234A,234B,234C : Interest Penalty for not paying Expected IncomeTax on Time explains the concepts of 234A, 234B and 234C.

Interest payable under section 234A, 234B, 234C

Where in ITR do you file the date of filing?

In ITR Return filed under section says when you are filing the return. It depends on whether you are filing for first time in the assessment year before or after the due date or whether you are revising your return or you have been served notice by Income Tax Department and you are filing returns in reply to that. Due Date for filing of returns for individuals is 31-Jul of the Assessment Year, for ex for AY 2019-20 it is 31-Jul-2019.

  • 139(1): On or before the due date: section
  • 139(4): Belated After the due date under section 139(1) but before the expiry of one year from the end of relevant assessment year: section
  • 139(5): Revised
  • 119(2)(b): Afer condonation of delay.  Condonation of delay request can be filed within 6 years from the end of the assessment year for which income tax return has to be filed. But it is better you file ASAP. Once you file the condonation request, you can track the status through the e-filing portal. After the request is accepted you file the ITR under section 119(2)(b)- after condonation of delay
File ITR with Condonation Delay

File ITR with Condonation Delay

Related Articles:

Income tax authorities allow you to self assess your income and accordingly pay taxes. Many people tend to believe that his/her income tax return is a drop in the ocean for the income tax authorities and hence do not file returns or do not declaring full income. Deliberately hiding your income from the income tax authorities, to reduce your tax liability, amounts to tax evasion. Some examples of tax evasion include, not declaring interest received on bank fixed deposits or accepting income in cash. We recommend you to file your returns on time, before due date. For as they say A stitch is time saves nine or precaution is always better than cure. Do you file your returns on time?

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