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What happens when you miss your income tax filing deadline?
August, 04th 2010

The last date of filing returns for the FY 20009-10 has just passed us. It is quite possible that some of us may not have been able to file returns before the last date. What happens then? Is there any way out?

The Income Tax Act allows individuals to find late returns. Income Tax returns can be filed any time before the expiry of two years from the end of the financial year in which the income has been earned.

Hence, for FY 2009-10, income tax returns can be filed before March 2012. However, if returns are not filed within two years, the Income Tax department does not allow you to file returns at all and the income earned will be treated as concealed income chargeable to tax.

If you file returns before the end of the assessment year, i.e., before 31st March, 2011

If you do not have any outstanding tax liability, i.e., tax payable, then you can file returns any time before 31st March, 2011 without any penalty.

If you have an outstanding tax liability, and you file your returns before 31st March, 2011, a penalty of 1% per month will be levied on the outstanding tax amount payable.

Illustration: Manoj has an outstanding tax liability of Rs 20,000 and has missed the income tax filing due date. If he files his tax returns before 31st March, 2011, i.e., on 1st Jan, 2011 in addition to the tax liability of Rs 20,000 payable he will have to pay a penalty of Rs 1,800 which totals up to Rs 21,800 along with his taxes.

If you file returns after the end of the assessment year, i.e., after 31st March, 2011

Even if there is no outstanding income tax liability, if you file your returns after the end of the assessment year, a penalty of Rs 5,000 is levied.

If there is an outstanding income tax liability and returns are filed after the assessment year, in addition to the penalty of 1% per month on the outstanding tax liability, a penalty of Rs 5,000 will be levied.

For example, if Manoj ends up filing his income tax returns on 30th June 2011, his tax liability would be a sum total of Rs 20,000, a penalty of Rs 5,000 and an interest penalty of Rs 3,000 which totals up to Rs 28,000.

So even if you have missed your income tax return filing date, in order to limit the financial impact on yourself especially if you have an outstanding tax liability, it is essential you file returns before the end of the assessment year. So do not relax after having missed the date. If you delay it beyond the end of the assessment year, you will face the maximum penalty, i.e., a flat amount of Rs 5,000 and then penal interest of 1% per month on the outstanding tax amount if there is any.

Impact of filing returns late

Although the income tax authorities allow individuals to file delayed returns, individuals do not enjoy all the benefits enjoyed by those filing returns before the due date. They include:

-- Losses on account of transfer of capital assets or business loss cannot be set-off or carried forward. Thus you will lose a chance to set off the loss against income in the next year.

-- Returns cannot be revised

-- In case you are eligible for a refund, you may end up losing interest

Financial implications

Thus, not filing income tax returns in time have financial implications especially if you have losses which could be carried forward.

Even if you do not have losses to carry forward and you miss the deadline, make sure you do not procrastinate especially if you have a tax liability outstanding as you pay a penal interest on the same.

File your tax returns even if it is a belated return as soon as possible because it is a constitutional obligation.

Better late than never! You don't want the tax man knocking at your doors for not filing returns.

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