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File belated tax return with a cool head!
February, 20th 2009

Have you missed the train?? The tax train, that is!! If you have missed filing your tax return, do not can still file a 'belated return'.The Indian tax authorities are always ready to give you a second chance!

In case of financial year beginning 1 April 2007 and ending on 31 March 2008, the due date for filing the income tax return for individuals whose total income exceeded the maximum amount which is not chargeable to tax (and who does not have to get the accounts audited) was 31 July 2008. For those of us who managed to meet the deadline, a job well done - for others, there is no real reason for you to worry. You can still file your return which will be considered as a valid tax return, but just that is would be treated as a 'belated return'.

Some major implications of filing a Belated Return

For the financial year ended 31 March 2008, the belated return can be filed up to two years from the end of financial year, which is up to 31 March 2010. However, there are riders attached to filing a belated tax return. Otherwise, there would be no point in the tax authorities spending so much on advertising the deadline of 31 July 2008.

If you file your return after one year from the end of financial year, that is after 31 March 2009 (for returns pertaining to financial year ended 31 March 2008), there is an exposure to penalty of Rs 5,000 depending on the discretion of the revenue authorities. This penalty will not apply if you file your tax return before 31 March 2009.

Other than that, if you still have to pay any taxes on your income, you will have to pay an interest of 1% per month from the month immediately following the due date of filing the return till the month in which the return is filed. However, in case you are a salaried person and all your taxes have been deducted at source by your employer, or if you are a businessman and you have paid all your taxes by way of advance tax, in that case, you don't need to pay any interest. Just go to the income tax office and file your tax return.

Let us understand the interest implications better by way of an illustration:

Rahul is a salaried individual and Sunil is a businessman and both have not filed their income tax returns before the due date. The taxes due on Rahul's salary have been deducted at source by his employer and accordingly Rahul won't have to pay any interest on taxes assuming he has no other income. In case of Sunil, if there is outstanding tax to be paid, due to delay in filing the return of income, he will have to pay interest on the outstanding tax amount @ 1% per month for the months starting from August 2008 to March 2009 assuming that he files his return in March 2009. And if either Rahul or Sunil file their tax returns after 31 March 2009 but before 31 March 2010, they may also have to shell out a penalty of Rs 5,000 in addition to interest on unpaid tax of 1% per month.

One also needs to take care of the following downsides of filing a belated return. If a tax payer has suffered any business/capital losses in the financial year, then these losses can be carried forward for set-off with profits / gains in future years only if the return is filed within the due date (except unabsorbed depreciation, which can be carried forward even if the return is not filed within the due date).

If, in any case, the return cannot be filed within the due date, and has been filed after the due date as a belated return, then these losses cannot be carried forward to future years for set-off. So continuing with the above example, if in case Sunil suffered a business loss or if Rahul suffered a capital loss from sale of shares or other securities, they will not be allowed to carry forward the losses as they did not file the returns within the due date.

Further, in case a tax payer has filed a belated return, and if at a later date he discovers any omissions or wrong statements, it will not be possible for him to revise the return as it has been filed belatedly. The tax laws of India specify that a return that is filed belatedly cannot be revised at any later date. This right is available only to those taxpayers who have filed their returns on time.

If, on the other hand, you have already paid more than your fair share of taxes, and you have to claim a refund and you file a belated return, you will continue to be entitled get the refund due to you.

Key take aways

The income tax return filed by a tax payer is not just an obligation, but also an important permanent document that can be used for various purposes like obtaining loans from banks, applying for visa for foreign visits, etc.

To conclude, a word of advice to those who have not yet filed their tax return - better late than never - go ahead and file it as soon as possible and certainly before 31 March 2009. All the same, ensure that next year on, you file your tax return within the due date, to avoid any of the negative implications that go with filing a belated return.

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