Why filing Income Tax Return before 31st July is Important?

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The due dates for filing the Income Tax Returns in India for an individual taxpayer is 31st July of the assessment year unless and until their accounts are mandatorily required to be audited.

An “Assessment Year” is the year immediately following the financial year, in which income is assessed and taxes are paid thereupon. Thus, it can be rightly said that income for a financial year is assessed in its assessment year. For instance, income is earned during the period April 1, 2015 to March 31, 2016. Now income tax on income earned during this period would be paid during the year April 1, 2016 to March 31, 2017, i.e. on or before July 31, 2016.

As per the Income Tax Act, 1961, the due dates are given under Section 139(1). The details of the section are briefed as below:

Type of PersonDue Date of filing the Income Tax Return
Companies which are covered under the transfer pricing provisions30th November of the Assessment Year
Other Companies30th September of the Assessment Year
Non-corporate taxpayers who are compulsorily required to get their books of accounts audited under any law in force30th September of the Assessment Year
Working partners of Partnership Firms which are compulsorily required to get their books of accounts audited under any law in force30th September of the Assessment Year
Others31st July of the Assessment Year

The following are the consequences of non-filing of your income tax return within the due date:Thus, it is important for taxpayers to file their tax returns within the due date as specified in the above table failing which they would be withdrawn from various opportunities.

  1. Notice u/s 142(1): If a taxpayer does not file his/ her income tax return within the due date, i.e. July 31st of the assessment year, then the tax officer might issue a notice to him/ her requiring him/ her to furnish the return of income within the time specified in the notice. It is to be noted that this notice can even be issued to a person after the end of the relevant assessment year. Now a person must mandatorily comply by this notice and if he fails to comply with the directions of the notice, then the tax officer has the right to start with the best judgment assessment proceedings* without even giving a show cause notice for the same. Thus, compliance to this notice is very important.
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*If any person fails to furnish a return of income within the due date (For individuals, it is July 31st of the assessment year), then the tax officer, after considering all the relevant material which he has gathered, can make an assessment to the best of his judgment and determine the income tax payable. This is called a best judgment assessment.

  1. Penalties: If a person who is required to furnish a return of his income, fails to furnish such return before the end of the relevant assessment year, that person can be directed by the tax officer to pay a penalty of INR 5,000.

For example:

Previous year (Financial year to which the income relates): April 1, 2015 to March 31, 2016

Relevant Assessment Year (Financial year in which the income is assessed): April 1, 2016 to March 31, 2017

Due date of filing return: July 31, 2016

Case 1: Return filed on 30th June, 2016- No penalty shall be levied

Case 2: Return filed on 31st July, 2016- No penalty shall be levied

Case 3: Return filed on 31st March, 2018-Penalty of INR 5,000 shall be levied. However, if the person proves that there was a reasonable cause for the said failure, the penalty shall be dropped since this is a discretionary penalty.

It is to be noted that even though in 1st two cases, penalty would not be leviable but the following consequences would follow:

  1. Such return cannot be revised (refer point 3)
  2. The person is exposed to the risk of best judgment assessment*
  3. Mandatory interest shall be leviable (refer point 5)
  4. Loss of interest on refund, if claimed (refer point 7)
  1. No option of revision of return of income: A person has the option of filing a belated return till the end of the relevant assessment year or completion of your best judgment assessment, whichever is earlier.
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For example, a belated income tax return for Financial year 2015-16 can be filed upto 31st March 2018.

One should keep in mind that having given this option of filing the return of income belatedly, one loses the option of revision of return.

However, it is to be noted that with effect from April 01, 2017, even those taxpayers who file a belated return would be allowed to revise their return later, if required. So, it would be possible to revise belated returns filed after 1st April, 2017 i.e. for Financial Year 2016-17 but returns filed for Financial Year 2015-16 are not covered under this amended provision. Hence, there is no scope of revising a return filed after the due date July 31, 2016 for the Financial Year 2015-16.

  1. No facility of “carry forward and set off” of losses available: In case, a taxpayer wishes to carry forward and set off his/ her losses in subsequent years, he/ she must file his/ her return within the due date, i.e. July 31st of the relevant assessment year. Thus, forget about carrying forward your speculation losses, short term capital losses, long term capital losses or other business losses, if you have not filed your return on time.
     
  2. Mandatory interest: One should always keep in mind that interest liability is compensatory and mandatory in nature and in no circumstances, can this be waived off. Thus, if a taxpayer has not filed his/ her return within the due date, simple interest @ 1% per month or part of the month would be mandatorily leviable from the due date till the date of filing the return. Also, if the taxpayer has not filed the return at all, interest would be levied till the end of the assessment proceedings.
     
  3. Prosecution: Now this can be quite harsh as a person can be put behind bars if it is proved that non filing of return within the due date was willful and there was an intention to evade the taxes. However, if the delay is due to circumstances beyond the control, of course the intension of evasion and willfulness is absent and no prosecution proceedings can be initiated.
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For example, if a person fails to furnish the return of income on time but later on offers his income for tax and makes the payment alongwith necessary interest and penalty, on his own, it could not be inferred that the intention was to evade taxes and thus no prosecution provisions would be initiated.

  1. Loss of refund: In case the taxpayer claims a refund in his/ her income tax return of any advance tax paid/ Tax Deducted at Source/ Tax Collected at Source, he/ she would lose some of the interest, which is currently 6% per annum, paid by the income tax department on such refund. This happens because the interest on refund is normally computed from April 1 of the assessment year till the date of grant of refund. However, in case of a belated return i.e. return filed after the due date, interest is computed from the actual date of filing the return till the date when refund is granted. This means loss of the interest that would have been paid for the period April 1 till date of filing the return. Even if you file the return one day after the due date you would be losing interest for at least four months – April, May, June and July (presuming due date is not extended beyond July 31).

Thus, it is advisable to all those who are required to file their return of income to file the same on time without fail. Also, return filing is very simple and does not take much of your time once you have all the details in hand.