SEPTEMBER 07, 2018

By Ashish Mittal, Chartered Accountant

BEFORE detailing about the consequences of filing delayed income tax return, one should understand the requirement to file return of income:

Who is required to file Income Tax Return

Every person-

a. being a company or a firm; or

b. being a person other than a company or a firm, if his total income in respect of which he is assessable under the provisions of the Income Tax Act 1961 during the relevant previous year exceeded the maximum amount which is not chargeable to income-tax,

shall, on or before the due date, furnish a return of his income in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

Further, every company or a firm, shall furnish on or before the due date the return of income/ loss for every previous year.

Due date for filing return of income

As per explanation 2 to Section 139(1) where the assessee is other than the following:

-  Company, or

-  A Person whose accounts are required to be audited under the provisions of Income Tax Act 1961 or under any other law, or

-  Working Partner of a firm whose accounts are required to be audited under Income Tax law or any other law, or

-  Assessee's who is required to furnish transfer pricing report u/s 92E.

Then the due date to file return of income is 31 July. However, for Financial Year 2017-18, CBDT vide its order dated 26 July 2018 has extended the due date for filing return of income from July 31 to August 31, 2018. Hence the return of income of all assessee's who do not fall under the above categories were required to file the return of income for FY 2017-18 by 31 August 2018.

In case any person has missed filing the return of income then following are is its impact:

Belated Return

If a tax payer fails to file the return of income on or before the due date then as per Section 139(4), such tax payers can file a belated return (i.e. return being filed after due date) at any time before the end of relevant assessment year (year following the financial year) or before the completion of assessment whichever is earlier.

Eg: If Mr A, for any reason has failed to file his return for FY 2017-18 on or before August 31, 2018 then he can still file a return belated anytime on or before 31 March 2019 (ie any time before the end of relevant assessment year). However, if the Assessing Officer of Mr A has already started conducting the assessment then Mr A can file the return anytime before completion of assessment but not later than 31 March 2019.

Revision of Belated return

In case the tax payers wishes to revise its tax return which was filed belatedly, then as per the provisions of Section 139(5), a belated return can be revised any time before the end of relevant assessment year or before the completion of assessment whichever is earlier. This is applicable for Financial Years beginning from 1 April 2016

On filing of belated return following are the major consequences:

1.  Levy of Interest

As per the provisions of Section 234A of the Act, where the return of income for any assessment year is furnished after the due date or is not furnished then the assessee shall be liable to pay interest @1% for every month or part of the month commencing from the date immediately following the due date and:

a. Where the return is furnished then upto the date of furnishing the return

b. Where the return is not furnished then upto the date of completion of assessment

on the amount of tax on the total income as determined in the Intimation issued under section 143(1) and where regular assessment is made, the tax on total income as determined under such regular assessment and reduced by advance tax along with TDS/TCS.

Thus, the tax liability will go up on account of delayed return filing.

2.  Unable to Carry Forward certain Tax Losses

In case the return of income is filed late then the tax payer may not carry forward the following losses:

a. Capital Loss

b. Business loss

c. Losses from the activity of owning and maintaining race horses

Though the tax payers may not carry forward the above loss, they can determine such loss after setting off in current computation of taxable income.

Further, the loss incurred on house property and unabsorbed depreciation in case of business can be still carried forward for future set off though the return is not filed within the due date

3.  Penalty under Section 234F

This is a newly introduced provision effective from FY 2017-18 which provides that where if the Income Tax return is not filed on or before the due date then the tax payers will be required to pay penalty u/s 234F as follows:

a. Rs. 5000 if return is furnished on or before 31 December of assessment year.

Rs. 10,000 in any other case.

However, if the Total income of the tax payer does not exceeds Rs. 5 lakh then the maximum penalty payable shall be Rs. 1000.

4.  Prosecution on account of willful default

In case of any tax payer who willfully fails to furnish the return of income within the due date then the following could be the repercussion:

a. If the tax which would have been evaded if the failure was not discovered exceeds Rs 25 lakh then with imprisonment for a term which shall not be less than six months but may extend to seven years and fine

b. In any other case with imprisonment for a term which shall not be less than three month but may extend to 2 years and fine

However, no person shall be proceeded under this section if:

a. The return is furnished before the expiry of assessment year (i.e. year following the financial year), or

b. The tax payable by such person (other than company) on the total income determined on regular assessment as reduced by advance tax and TDS does not exceed Rs 3,000

Conclusion

Given the above implications, it would be advisable that one must file his or her return of income and pay the due taxes on or before the due date. In case, where somebody is unable to furnish his income tax return, at least the balance tax payable (if any) must be paid within due date. Where taxes are paid in full, there would be no levy of penal interest. However, other shortcomings such as no carry forward of losses, Penalty etc will still be applicable.

(The views expressed are strictly personal)